A new cryptographic tool aims to allow legitimate users of the sanctioned Tornado Cash mixer to verify their funds’ legal origins without compromising their privacy, addressing a key challenge in crypto regulation.
The solution, named “Tornado Cash Proof of Association,” was launched by 0xBow, the development team behind the privacy project Privacy Pools. It leverages advanced cryptographic technologies, including zero-knowledge proofs (zk-proofs).
A representative for 0xBow told The Block that the mechanism is the “first functional mechanism that reconciles privacy preservation with regulatory compliance within the Tornado Cash ecosystem.”
The development comes as Tornado Cash remains a focal point of controversy after the U.S. Treasury Department’s Office of Foreign Assets Control (OFAC) sanctioned it in August 2022. OFAC accused the Ethereum transaction mixer of facilitating the laundering of billions of dollars in illicit funds, including those linked to the North Korean hacking group Lazarus Group.
While a recent court decision led to Tornado Cash being removed from OFAC’s Specially Designated Nationals (SDN) list, legal uncertainties persist. Cryptocurrency exchanges have frequently requested proof of origin for funds associated with Tornado Cash, creating a difficult environment for users seeking privacy without breaking the law.
The “Proof of Association” tool allows users to input their deposit note and withdrawal address into the system. It then generates a cryptographic proof to verify if the funds originated from legitimate sources.
If validated, the user’s address is added to a public record, certifying its association with legal activities without revealing sensitive personal information. The system maintains a curated list of Tornado Cash deposits, excluding those linked to hackers, thefts, or phishing. It has identified and blocked over 16,000 addresses associated with digital crimes from the validation process.
The architecture for Privacy Pools draws inspiration from a concept proposed by Ethereum co-founder Vitalik Buterin and other developers. Their theory of “Association Set Providers” suggests creating verified “clean” groups to anonymize funds, distinguishing them from public mixers often exploited by malicious actors. This approach seeks a balance between complete privacy and regulatory transparency.
Ameen Soleimani, a co-founder of 0xBow, emphasized the users’ role in upholding ethical standards. In a post on X, he stated, “If you still use Tornado Cash and do not disassociate yourself from hacked funds deposited there, you are actively helping the hackers. We have the technology, but it is up to us to use it responsibly.”
The launch represents a notable step in the ongoing global debate regarding privacy in blockchain technology. The crypto community continues to grapple with the challenge of protecting individual privacy while preventing financial abuse.