Privacy Pools, an open source research project and successor to Tornado Cash, was deployed over the weekend on the testnet of the Layer 2 Optimism scaling system.
Like Tornado Cash, privacy pools allow users to conduct transactions anonymously. However, the difference between the two tools stems from the way privacy pools use zero-knowledge algorithms to prove that funds in anonymous transactions are not linked to criminal activity.
In August 2022, Tornado Cash was sanctioned by the U.S. Department of the Treasury’s Office of Foreign Assets Control (OFAC) for its involvement in North Korean money laundering. That same week, Tornado Cash web developer Alexey Pertsev was arrested.
While OFAC approves Tornado Cash, the platform averages $7.87 million in deposits and $5.97 million in withdrawals per week in 2023, and is “on track to remain anonymous by 2023, roughly $250 million,” the Privacy Pools developer said.
Privacy Pools improves on something Tornado Cash couldn’t: Allow users to prove their funds weren’t involved in criminal activity, such as Axie Infinity, the $625 million North Korean blockbuster game.
According to the protocol’s Github technical documentation, “Users can voluntarily remove themselves from anonymous groups containing stolen or laundered funds…The design is intended to be a permissive cryptocurrency solution. The community prevents abuse by hackers. User Anonymity”.
With privacy pools, users deposit funds into a public pool and then withdraw funds to a new wallet address that is untraceable and cannot be linked to any previous transaction history. As more people opt out of anonymous groups containing stolen or laundered funds, the number of groups hackers can infiltrate and use is shrinking. As such, the protocol gives users the option to help regulators segregate funds without disclosing their entire transaction history.
Privacy pools are still experimental and untested code. This is an opportunity to demonstrate the ingenuity of the crypto community in terms of self-regulation, and to demonstrate the incredible power of zero-knowledge algorithms.
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