A New Crypto Mixer Promises to Be Tornado Cash Without the Crime

When the US government announced sanctions against Tornado Cash last August, the warning seemed to be aimed at all crypto mixers. 

Alleging that Tornado Cash had been used to launder $7 billion in digital currency—including half a billion dollars tied to Lazarus, a hacking group sponsored by North Korea—the US Treasury’s Office of Foreign Assets Control said any service that “indiscriminately facilitates anonymous transactions” represents a “threat to US national security.”

That definition fits most mixers, which are typically used to obscure the originators and recipients of crypto transactions by scrambling together funds from a large number of people. By the time depositors withdraw their funds to separate addresses, it is no longer clear whose crypto is whose.

Under the sanctions—which have been challenged in court—US residents are no longer legally allowed to use Tornado Cash. Separately, one of the service’s developers, Alexey Pertsev, is being held in custody in the Netherlands on suspected “involvement in concealing criminal financial flows and facilitating money laundering.”

But one of the early architects of the Tornado Cash project, Ameen Soleimani, has announced that he’s launching a successor to the sanctioned mixer, Privacy Pools, which he says will still allow users to make private, largely untraceable transactions while discouraging money laundering and other illegal activities. 

“If Americans want privacy, we have to figure out how to operate within the regulatory paradigm,” says Soleimani (who describes Pertsev’s imprisonment as an “affront to justice”).

Soleimani announced the sequel to Tornado Cash on Twitter on February 26, revealing only its name and backing from MolochDAO, a decentralized autonomous organization (DAO) that hands out grants to developers building apps for the Ethereum blockchain, and which Soleimani is closely involved with. 

At ETH Denver on March 4, he plans to unveil a rudimentary demo, with limits placed on the amount of funds that can pass through the service because the code has not yet been properly audited for bugs. “It’s not a ‘put all your money in’ kind of launch,” Soleimani says, “it’s a ‘let’s start a conversation’ kind of launch.”

That conversation, he says, is about whether it’s technically possible to satisfy authorities’ need to trace the passage of stolen cryptocurrency while still affording crypto users the financial privacy they demand. 

Privacy Pool will use a cryptography technology called a “zero-knowledge proof,” by which users are able to demonstrate that their crypto withdrawals are unconnected to deposits made by known criminal wallets.

The basic premise, Soleimani says, is that users can “withdraw without revealing who they are by publicly proving who they are not.” 

However, Soleimani admits that the exact mechanics of the zero-knowledge proof are a mystery even to him. He decided to use it after being approached by an anonymous developer known as Twister, who is working on implementation of the technology. Soleimani says he doesn’t know much about Twister but isn’t concerned about working with an unknown quantity because the service is just a pilot at the moment.

Andrew Thurman, head of content at blockchain analytics company Nansen, says these kinds of proofs are “poised to play a key role” in affording anonymity to crypto users. The technology is gaining traction in crypto circles as developers explore different applications; Ethereum side-chain Polygon is making particularly heavy use of it, and Buterin has been vocal about its potential.

Under Soleimani’s system, individual users will be responsible for marking out which other depositors they do not want to be associated with. In practice, he imagines that will mean using blacklists compiled by companies like Nansen, which monitors public blockchains for criminality.

In theory, such a design would also limit the amount of funds tied to criminal activity that pass through the mixer, he claims, “because everyone else using it will have the option to isolate [criminal addresses],” reducing the size of the pool in which bad actors can hide. 

The system wouldn’t mean that criminals couldn’t operate on the mixer, only that they wouldn’t be able to access its full liquidity.

Soleimani says that an alternative system, where an administrator maintains a blocklist to bar bad actors from the platform entirely, would be prohibitively expensive because adding addresses to a blockchain-hosted list comes at a cost each time, and criminals frequently hop between wallets. It would also raise ethical questions around whether one individual should make  a judgement about who is allowed to use the service.

“I don’t think I should be in charge of deciding who the good and bad people are for everyone—and nor should anyone else,” says Soleimani. “This system is different because it allows individuals the choice of who they associate with or not.”

Soleimani says that Privacy Pools’ clients are likely to be people who want to make transactions privately—those who want to donate to political causes anonymously or conceal the size of their crypto-denominated salary, for example.

Even before the technical details were released, the project began receiving messages of support from the cypherpunk community, which advocates for the use of cryptography to safeguard personal privacy.

“Cypherpunks like privacy, institutions like privacy, casual investors like privacy,” says Thurman. “It will be warmly welcomed.”

“I’m sure it will be good, whatever he puts out there,” says Greg Di Prisco, formerly head of business development at MakerDAO, another prominent Ethereum-based DAO. “I do not think the average user understands just how bad the world will look without transaction privacy.”

As for whether US regulators are likely to be receptive to the idea, however, Soleimani says he is “not at all confident”—a feeling that’s shared within crypto circles.

The debate around crypto mixers highlights the “philosophical divide” between evangelists and regulators, according to crypto analyst Noelle Acheson, around whether financial privacy is a right. She predicts that regulators in the US are likely to treat any kind of mixer with suspicion because of the opportunity for misappropriation, even if only a small percentage of users are bad actors.

But the emergence of a successor to Tornado Cash, Acheson says, points to the difficulty regulators face in preventing similar tools from coming to market, which risks becoming an endless game of whack-a-mole. 

Despite the headwinds, Soleimani says he hopes the project will come to represent a rare convergence of the interests of regulators and crypto evangelists—and will act as something of a “peace offering.” (OFAC did not respond to a request for comment.)

“My goal is to have a privacy tool that I can use, as an American citizen. This has always been my goal—it was the goal when we made Tornado Cash in the first place,” he says. “My friends and I think privacy is normal. Someday you will too.”