Introduction
One of the main features of cryptocurrencies is the openness of the blockchain, the underlying technology that keeps a record of transactions made. Such a level of transparency, even for digital currencies that are expressly intended to increase user anonymity, can track assets as they are exchanged and remove anonymity to some extent completely. It shows what you can do.
Where are your digital assets now that the screws of surveillance are tightening relentlessly? Identity is hidden, but transaction tracking is not. Know Your Customer (KYC) and Anti-Money Laundering (AML) laws mandate centralized exchanges (CEX) and other controllers so that a simple data breach could help regulators and even hackers can associate personal information with blockchain transactions. Privacy solutions such as Monero and ZCash have been introduced to solve blockchain privacy problems. However, these projects will run on the native network. Therefore, you cannot provide privacy to other chains. That led to the birth of Tornado Cash.
What is Tornado Cash?
Tornado Cash is a decentralized privacy solution built on zero-knowledge proofs based on the Ethereum blockchain. It allows users to break ties in on-chain transactions and improves transaction privacy between depositing and withdrawing addresses.
Tornado Cash works like a coin mixer. Facilitate ETH deposits and withdrawals to multiple addresses using smart contracts. Withdrawals are made from the Tornado Protocol’s liquidity pool, making it difficult to determine the sender’s identity. Tornado generates a secret hash when users send cryptocurrencies. Its protocol acknowledges deposits and hashes in a process known as commit. The pledge identifies the owner of the funds and confirms this upon withdrawal. Users must enter a secret hash when withdrawing to prove ownership while maintaining on-chain anonymity.
Community-based Tornado Cash — in May 2020, the Tornado developers removed multi-signature wallets from the protocol via a contract update called Trusted Setup Ceremony. As a result, the founders lost control of Tornado, making it a completely decentralized protocol.
TORN is the currency of Tornado Cash. It is an ERC-20 token with a maximum supply of 10 billion coins, and it allows holders to participate in proposals and vote on protocol changes. Additionally, TORN holders earn anonymity points for using the protocol, which they can deposit into a protected account and convert into TORN tokens.
Illustration of how a tornado works
Mixing assets with the Tornado protocol breaks the blockchain transaction connection and enjoys privacy on public networks like Ethereum.so you can deposit funds into the protocol and withdraw them to your web3 wallet.
Suppose Josiah wants to hide his 100 ETH on-chain activity. In this case, tokens can be sent to the Tornado protocol to be shuffled into the liquidity pool and withdrawn to another address or address. This way, the log allows him to remain anonymous in the chain. However, using the protocol without taking any upstream or downstream action allows you to enjoy partial anonymity. Therefore, Tornado Cash recommends using a Virtual Private Network (VPN) to prevent third parties from detecting them using his Tornado Cash and deleting browsing history. To do. Withdrawal address and use of many addresses.
Want to know how to use Tornado Cash? To enjoy Tornado services, please follow these simple steps:
Go to the Tornado Cash website.
Link your Web3 wallet and select assets to shuffle
Deposit coins and copy private key
Complete and sign the transaction
Please be patient before withdrawing assets with multiple addresses.
Special Features of Tornado Cash
Tornado Cash radically improves the privacy of on-chain activities by breaking the connection between deposit and withdrawal addresses. It uses smart contracts to accept ETH deposits that users can withdraw with multiple addresses. Also, using the relayer, he can withdraw to addresses with no ETH balance, further increasing his privacy.
Tornado Cash is a blender that keeps your on-chain activity anonymous with proof of zkSNARK. This evidence involves two of his associates:
Prover — someone who wants to prove a hypothesis
Verifier — someone who verifies the validity of the verifier’s claims
Anonymous mining is another feature that makes Tornado Cash unique. This feature allows Tornado to reward users who help keep the project running by reducing liquidity. Tornado also ensures privacy while mining through a two-stage shielded liquidity mining process. After depositing funds on the Tornado Protocol, users can earn anonymous points in their shielded account. These accounts do not reveal the user’s account balance, address, or type of assets. Once a user reaches a minimum number of Anonymous Points, he can redeem them for TORN tokens through her Automated Market Maker (AMM) in Tornado Cash.
It is important to note that anonymous points can only be claimed for used Tornado notes. Therefore, the rewarding process must demonstrate a zero-knowledge proof of the protocol to determine the anonymity points earned.
US Sanctions on Tornado Cash
On August 7, 2022, the U.S. Treasury Department sanctioned Tornado Cash for allegedly helping North Korean hackers launder billions of dollars in cryptocurrency. The U.S. Treasury Department regulator responsible for imposing sanctions, the Office of Foreign Assets Control (OFAC), has confirmed the news and has banned U.S. crypto users and companies from interacting with the protocol.
Tornado Cash has laundered more than $7 billion in cryptocurrency since its launch in 2019. However, according to a report by cryptocurrency analysis firm Elliptic, he only had $1.5 billion in funds illegally obtained through ransomware, hacking, and fraud via the Tornado protocol.
Elliptic’s findings contradicted the Treasury Department’s report, claiming that the $7 billion quoted by the Treasury represented the total amount of cryptocurrency processed by Tornado Cash, which included legitimate users seeking financial privacy. It is included. The laundered assets include $445 million hacked by the Lazarus Group, a well-known North Korean hacking organization under U.S. sanctions. The group was previously involved in the $625 million Ronin Network hack and the $100 million Horizon Bridge hack.
Additionally, the Treasury Department said hackers used Tornado Cash to launder approximately $7.8 million in stolen assets in the recent Nomad robbery. The Treasury Department has therefore accused Tornado Cash of not taking adequate measures to prevent hackers from using it for money laundering activities. They also warned that they would ruthlessly sanction coin mixers that help criminals launder money.
Effects of Prohibition on the Crypto Space
Tornado Cash felt the heat right after the ban. The Treasury has blocked 38 Ethereum wallets owned by Tornado Cash and 6 of his USDC wallets. Also, Circle (the USDC administrator) and Github are sanctioned compliant.
Circle has not officially commented on the issue, but a bot identifying USDC blocklisted transactions indicates that the address in question has been officially blocked. The address is estimated to contain more than $75,000 of his USDC owned by a Tornado Cash investor. In other news, Github blocked accounts of Tornado developers such as Roman Semenov and Alexey Parts in response to the ban. Other of his Github accounts related to the Tornado protocol was also deactivated, though it is not clear whether they were voluntarily deactivated by handlers or forcibly deactivated by Github.
There are several real reasons why people use Tornado Cash. For example, a software employee paid in cryptocurrency who doesn’t want to share too much of their financial transactions with their employer can use Tornado Cash to make payments. Even his NFT artist, who recently committed murder and doesn’t want to attract attention online, can use Tornado’s cache to improve his privacy on-chain. People living under repressive regimes can use the Tornado Protocol to protect their privacy. On August 9, 2022, Ethereum co-founder Vitalik Buterin tweeted that he used the protocol to donate funds to Ukraine, preventing the receiving companies from coming under rival scrutiny. After the Roe v. Wade case is resolved, those wishing to contribute to the course can use his Tornado Protocol to disguise their identity.
Learning points from tornado ban
The Treasury Department’s ban on Tornado Cash could be a significant tipping point for digital assets in many ways. First, it demonstrates the U.S. government’s willingness to tighten regulations on the proliferation of cryptocurrencies. Proponents of Tornado Cash believe the ban is biased because the sanctions were imposed on a piece of code rather than an organization. Tornado is not a corporation; it is his DAO powered by smart contracts.
The ban also highlights the U.S. government’s desire to push cryptocurrencies towards a more centralized system that is easier to regulate. For example, the Coinbase exchange terms of service associate each cryptocurrency address with a verifiable user. Such sanctions are less likely to affect projects implementing KYC and AML rules.
Cryptocurrency users can face many tough decisions as they wait for governments to put a clear regulatory framework. For example, how far are you willing to lower your score for public acceptance? Should they cooperate or oppose regulators?
Most cryptocurrency enthusiasts are shocked by the Treasury Department’s ban for taking an ideological stance. Most don’t use the Tornado Protocol or any other privacy solution. Still, the Treasury Department’s ban violates the right of Americans to use privacy solutions for practical and legal reasons.
Final Words
Blockchain itself has no privacy features, but there are privacy projects that help protect identities on the chain. Tornado Cash is a practical data protection solution on the Ethereum blockchain. Essentially, Tornado pools assets and transfers them to new addresses, disrupting on-chain connectivity.
Tornado Cash enhances privacy on-chain, but cryptocurrency addresses leave a trail of “This person used the coin for a well-known reason! He shuffled!” And as the regulatory screws get tighter, regulators may even require you to explain why you’ve used coin-mixing services in the past. However, if you have never been involved in malicious activities such as money laundering, then you have nothing to worry about.
