Tornado Cash mixer blacklisted, Ethereum co-founder Vitalik Buterin proposes Privacy Pools

Tornado Cash, the Ethereum-based non-custodial privacy mixer was blacklisted recently after the Department of the Treasury’s Office in collaboration with the US Department of Justice (DOJ) and the IRS accused its developers Roman Storm and Roman Semenov of laundering over $1 billion for the infamous Lazarus Group. Now, Ethereum co-founder Vitalik Buterin is collaborating for a replacement touted as being “regulation-friendly.”

Also Read: Tornado Cash developers arrested and charged with laundering more than $1 billion

Tornado Cash could be replaced with regulation-friendly software

Ethereum co-founder Vitalik Buterin is working with a team to develop an alternative, expected to be compliant with industry regulations. Citing an excerpt from the announcement, “We explored new compliance opportunities where users can provably dissociate from illicit funds.”

Other than Buterin, the rest of the team comprises Ameen Soleimani, Jacob Illum, Matthias Nadler and Fabian Schar. The first is a developer, the second a Chainalysis researcher, while the last two are scholars.

Touted as “a novel smart contract-based privacy-enhancing protocol” Privacy Pools will do the same job as Tornado Cash, to enhance transactional privacy on blockchains, only better. Specifically, while they will not reveal the complete transaction history, Privacy Pools will be able to determine the source of the funds using zero-knowledge proofs. This means they will be able to tell whether the funds come from illicit sources. 

Privacy Pools Abstract

A space where financial privacy and regulation can coexist

Using Tornado Cash as a reference point, the authors explain that it is possible for financial privacy and regulation to co-exist as long as you can prevent it from being misused by unlawful actors.

When the DOJ clamped down against Tornado Cash, there was the expectation that the move would have wide-reaching and longstanding effects on the crypto ecosystem.Ethereum smart contracts for example share similarities with Tornado Cash, as both are made up of just code running on the blockchain. 

As such, Buterin seems to be  attempting to distance his network from possible negative sentiment connected with Tornado Cash even as the justice department turns its gaze toward mixing services and how they play enabling roles for criminals looking to conceal their activities after stealing funds from unsuspecting victims.