Earlier today, Tornado Cash announced the launch of its tool which allows users to transact with Ethereum’s cryptocurrency, ETH, anonymously.
One of the key features of blockchain technology is the complete public nature of the transactions occurring on the platform. The entire transaction history and cryptocurrency balance of an Ethereum user is public information. There are block explorer applications such as Etherscan, which allow people to see transactions without having to observe the actual blockchain. This information allows people to analyse your crypto activity, trace the source of your funds, and calculate your holdings. While decentralisation is one of the most appealing features of blockchain technology, the lack of privacy is one of its downsides.
In the announcement, Tornado Cash compares their services to other previous attempts at improving privacy on blockchains. They state that previous tools have not successfully ensured full privacy such as privacy-focused cryptocurrencies like Zcash have.
The technology that Tornado Cash is using to achieve the seemingly ‘impossible’ is using zero-knowledge proofs, similar to what is used by Zcash. The application allows users to use ETH in non-custodial smart contracts without revealing your address. Nonetheless, you receive proof that you have performed this action, and this proof is forwarded to an operator, who submits it to the smart contract, which completes its function and sends the ETH to the recipient while reimbursing the operator. There is thus no way to link the transaction to a user. The non-custodial nature of the process allows the user to retain control over the funds.
Tornado Cash does, however, provide some necessary instructions, and general advice, on how to maintain perfect anonymity when using their application and when transacting in cryptocurrency.
Ethereum founder, Vitalik Buterin had this to say about the project:
I'd say keep pushing on https://t.co/wwBUgU78ob, do the work to make sure it's secure and convince people of its security, get it integrated into wallets, etc. We do need mixers done well and not just left behind as barely usable experiments!
— Vitalik Non-giver of Ether (@VitalikButerin) August 7, 2019
Their post on how to use their tool effectively can be seen here.