Important facts:
  • The service connects two other ZKP-based Ethereum systems, Aztec and EYs Nightfall.

  • Tornado Cash included a compliance function to address regulatory concerns.

The main Ethereum Mixing Service now has no permissions. Tornado Cash, a privacy tool to disguise Ether’s transaction history, completed a cryptocurrency process on May 10, referred to as a trust establishment ceremony, followed by a contract update the next day, Monday May 11 May to create a self-executing code.

“With a record 1,114 posts, this was by far the largest trust-building ceremony to date,” Tornado Cash wrote in a blog post on May 13. The ceremony is based on a cryptographic method known as multiple participant computing (MPC) makes Tornado Cash “absolutely reliable and unstoppable”, Co-founder Roman Storm said in an interview.

Tornado Cash v1 was released in August 2019, but continued as verified “experimental software” because developers withheld user funds through a multi-signature portfolio.

With v2 all of that is gone. The MPC and the recent contract update effectively break the developer key and create an intelligent contract without a private key.

Private transactions

Technically, Tornado Cash relies on Zero Knowledge Evidence (ZKP) or mathematical evidence that a transaction has taken place without disclosing payment information as such.

Consequently, Tornado Cash connects two other ZKP-based Ethereum systems, Aztec and EYs Nightfall. As reported, Aztec’s data protection protocol launched an Ethereum digital asset network, starting with DAI, while EY also launched a business-oriented data protection solution for Ethereum transactions in October 2019.

Version 3 of Tornado Cash offers access to private investors Samourai has been available to private investors since last February.

Of course, there are other cryptocurrencies that only focus on data protection solutions and are managed by zcash (ZEC) and monero (XMR). Electric Coin Company (ECC), a nonprofit behind the development of Zcash, is currently working on a bridge between it and the Ethereum blockchain to enable private transactions.

How private?

There are only two questions left for Tornado Cash: How many people will use it? And how will the regulators see it? On the first question, the introduction of Samourai after the start of mobile communications gives a positive signal. Bitcoin podcaster Matt Odell said the number of mixes in Samourai has doubled every month after adding mobile support.

Nevertheless Bitcoin is usually offered as a self-confident monetary alternative, while the ether use case fluctuated. However, ether is particularly important for tornado cash.

The effectiveness of a data protection protocol from Zcash to Wasabi depends on the number of users, which is known as the anonymity rate. Think of a crowd in a stadium: when the stands are full of fans, it is difficult to choose just one person. Conversely, an empty stadium helps frame a single fan.

Maddie Kennedy, representative of blockchain analytics company Chainalysis, made it clear that Tornado Cash may not be the solution that privacy-conscious users think is right. To do this, he states the following in an email:

While mixers, coinjoin, and solutions like Tornado Cash can make it difficult to track money, Chainalysis can track money through them.

This was supported by former Bitcoin Core employee Gavin Andresen in a blog post about Tornado Cash in November that highlighted additional measures like hiding the IP address that most users don’t take into account.

I wouldn’t be surprised if there was a document at the Cryptocurrency Financial Conference 2023 that shows that 85% of tornado usage wasn’t private – not because cryptocurrencies don’t work, but because it’s really difficult for mere mortals, so something like Tornado or using CoinJoin and other similar technologies so your portfolio information is not lost.

Gavin Andresen, former employee of Bitcoin Core.

Compliance issues

There are also compliance concerns, with the verdict pending as to whether the mixers are money transmitters or not.

In an email, the Financial Crimes Enforcement Network (FinCEN) stated that mixers like Tornado Cash could fall under the definition of a money transmitter and therefore have “obligations” set out in the Bank Secrecy Act (BSA).

In this context, Tornado Cashs Storm mentioned this After the trust configuration is released, little can be attributed to developers because it is self-executing code.

This does not mean that Storm and co-founder Riman Semenov want to venture beyond. In fact, Tornado Cash included a v2 compliance function to address some regulatory concerns. The new version includes a “note” that you can show to anyone who submitted the transaction history. This feature was added after some exchange offices were reported to freeze the accounts of users who owned coins with the history of mixers.

Storm also highlighted the friendly relationship between the ECC and the Zcash Foundation and U.S. regulators, despite the cryptocurrency’s perspective on data protection. Therefore he commented:

We are in a slightly different situation than other mix portfolios. I think it’s very important for us to be courteous. We do what we think is right.

Translated version of William Foxley’s article published on CoinDesk.


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