Mar 07, 2023

Privacy Pool Aims to Solve “Critical Flaw” of Sanctioned Crypto Mixer

Ameen Soleimani, a former developer at Tornado Cash, has recently released the code of a new Ethereum-based privacy pool mixer. The new crypto mixing service is designed to address a “critical flaw” in the sanctioned crypto mixer, and is intended to encourage U.S. regulators to reconsider their stance on privacy mixers.

The new Privacy Pools protocol was launched on GitHub on Mar. 5 and is designed to be used with zero-knowledge (ZK) proofs. This allows users to opt out of an anonymity set that contains an address associated with stolen or laundered funds, while still preserving their privacy.

In a 22-part Twitter thread, Soleimani explained that the “critical flaw” with Tornado Cash is that users cannot prove that they’re not associated with North Korea’s Lazarus Group or any criminal enterprise. This feature of Privacy Pools is intended to help regulators isolate illicit funds without revealing the entire transaction history of the user.

Soleimani has provided a demonstration of how Privacy Pools is used, and the protocol is live on Optimism. However, he noted that the first version of the privacy protocol is still in its “experimental” stage because the code isn’t complete and has not been audited.

The developer hopes the solution will enable “the community to defend against hackers abusing the anonymity sets of honest users without requiring blanket regulation or sacrificing on crypto ideals.” He cited a report by the Federal Reserve Bank of St. Louis in Missouri which proposed to achieve effective regulation by having Tornado Cash users provide receipts to an intermediary, thus revealing their entire transaction history to the intermediary, but still being able to have privacy with respect to other public blockchain users.

Soleimani’s attempt to create a crypto-friendly on-chain privacy solution comes after the U.S. Office of Foreign Asset Control (OFAC) sanctioned ETH and USDC addresses linked to Tornado Cash on Aug. 8. This was in response to several alleged thefts by North Korea’s Lazarus Group, who were claimed to have routinely used the privacy mixer to preserve its anonymity.

The developer hopes his new protocol can help “start a conversation” with U.S. regulators on how on-chain privacy can be preserved whilst restricting criminal activity through the use of ZK proofs. He also wants on-chain forensics platforms like Chainlaysis and TRM Labs to conduct tracebacks on deposits so that users of the privacy tool don’t have to manually create their own subset exclusion lists.

The launch of Privacy Pools is a major step forward for the web3 space, and it could be a game-changer for NFT promotion and marketing. As the protocol continues to progress, it could provide a much-needed boost to the crypto market and encourage more people to get involved in selling NFTs. As the protocol is still in its early stages, it remains to be seen how it will be used by the wider community, but it is certainly a promising development.

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