Tornado Cash Developer Developing Regulatory Compliant “Sequel”

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  • A former Tornado Cash developer is creating an Ethereum mixer which could abide by U.S. regulations
  • Privacy Pools will allow users to separate their withdrawals from illicit ones on-chain, leaving just the illicit ones in place to be sanctioned
  • Ameen Soleimani says that the new tool “allows the community to defend against hackers”

A former Tornado Cash developer is planning a regulatory compliant sequel to the sanctioned mixer, claiming recently to have “fixed” the original protocol. Tornado Cash was famously sanctioned by the Office of Foreign Assets Control (OFAC) in August last year, a move which has, naturally, drastically reduced its usage. The former developer, Ameen Soleimani, posted a tweet thread about the new project, called Privacy Pools, on Sunday, explaining how it features the concept of Self-sovereign Anonymity, which he says “allows the community to defend against hackers abusing the anonymity sets of honest users.”

Users Can Prove They’re Not Hackers

Soleimani’s tweet thread began by outlining that Tornado Cash is still being used by non-U.S. crypto users, with the mixing service on track to anonymize $250 in 2023. This, he says, proves that all the OFAC order did was make life more difficult for legitimate U.S. users and didn’t stop terrorism funding.

Privacy Pools has its roots in a suggestion from Vitalik Buterin in August 2022 that if users could somehow prove that their transactions weren’t linked to illicit activities then they should be allowed to use mixing services. This concept was built on by Dr Fabian Schär, Professor for Distributed Ledger Technology and Fintech at the Faculty of Business and Economics at the University of Basel, which concluded in February this year that effective regulation of mixing services could be as simple as having Tornado Cash users provide receipts to an intermediary of their actions. This would reveal their entire transaction history, allowing authorities to see that none of the transactions were linked to illegal acts while affording them privacy with respect to other public blockchain users.

Is Self-sovereign Anonymity The Answer?

It is this theory that Soleimani has baked into Privacy Pools and his idea of Self-sovereign Anonymity, where users can voluntarily remove themselves from an anonymity set containing stolen or laundered funds, which can be done without sacrificing the privacy of the user. This, he says, will allow the community to “defend against hackers abusing the anonymity sets of honest users without requiring blanket regulation or sacrificing on crypto ideals.”

Over time, Soleimani adds, the anonymity set for hackers would shrink to include only those bad deposits, “naturally hindering even the possibility of money laundering to occur.” Whether the U.S. government would agree or not is of course an unknown at this stage, which might explain why Soleimani was calling for “brave” volunteers to try out the demo.