Vitalik Buterin presented an alternative to Tornado Cash

The authors of this paper - Vitalik Buterin, developer Amin Suleimani, Jacob Illum of Chainalysis, and researchers Matthias Nadler and Fabian Schar - have proposed a service that is positioned as a successor to cryptocurrency mixer Tornado Cash. The service is privacy-oriented and has recently attracted the attention of regulators.

How Privacy Pools work?

The essence of Privacy Pools is to establish a "separating equilibrium," a term coined by the authors to describe a system that filters out illicit funds while maintaining compliance with regulatory standards. Moreover, it allows for private and legal financial transactions. In other words, the new development makes it possible to prove the legitimacy of assets without revealing the entire history of one's financial transactions. According to the authors, the combination of privacy and regulation can be beneficial for the long-term sustainability of cryptocurrencies. If these pools function well, they could become the foundation for financial privacy that also meets regulatory requirements.

What is known about Tornado Cash?

Tornado Cash is a decentralized cryptocurrency mixer that offers a cryptocurrency mixing service to hide the origin of assets. However, despite being useful for confidential transactions, Tornado Cash has been at the center of a legal scandal due to transactions linked to the North Korean hacking group Lazarus. In August 2022, Tornado Cash was blacklisted by the U.S. Treasury Department's Office of Foreign Assets Control (OFAC). In addition, the regulator claims that the cryptomixer has become a key tool used by criminals to launder stolen funds from decentralized exchanges and games such as Axie Infinity. Members of the crypto community have repeatedly asked the US authorities to ease sanctions against Tornado Cash, but in August the court rejected their request.

Thus, the Privacy Pools proposed by Vitalik Buterin and his team represent an interesting alternative to Tornado Cash. They offer a system that combines privacy and compliance, which could be beneficial for the sustainability of cryptocurrencies in the long run. Tornado Cash, on the other hand, has been at the center of a scandal due to its association with illegal transactions and has been blacklisted by regulators. The decision to choose between these two services is left up to users, but Privacy Pools offers a new approach to financial privacy that complies with legal requirements.