How Tornado Cash Became The Ultimate Anonymity Solution for Crypto!

Tornado Cash, also known by the market ticker TORN, is a decentralized privacy solution built on the Ethereum blockchain that aims to enhance the privacy and anonymity of cryptocurrency transactions on the Ethereum network.

By default, most blockchains are publicly viewable ledgers. This means every transaction can be viewed by anyone, at any time. Naturally, not everyone is a fan of having such publicly-viewable finances.

While you first may think of criminals, it would also be worth remembering that large corporations, whistleblowers, and politicians don’t love publicly sharing their finances either, meaning a solution was required if Ethereum is to overtake Bitcoin as the number 1 cryptocurrency by market cap.

This is where Tornado Cash comes in.

But what is Tornado Cash, and how does it work?

Tornado Cash was created by Roman Storm, Roman Semenov, and Alex Pertsev and launched on the Ethereum network in 2019.

Briefly put, Tornado Cash is a way to make Ethereum transactions anonymous, and it does this by implementing a non-custodial and trustless mixing protocol.

This is a fancy way of saying it is decentralized with no one in charge, it doesn’t hold your finances, and its mixing process occurs automatically thanks to smart contract technology.

The primary purpose of Tornado Cash is to break the linkability between sender and recipient addresses, making it more difficult to trace the flow of funds.

Tornado Cash utilises a concept known as “zero-knowledge proofs” to achieve privacy.

Zero-knowledge proofs allow one party, known as the prover, to prove the validity of a statement to another party, the verifier, without revealing any additional information beyond the validity of the statement itself.

In the context of Tornado Cash, zero-knowledge proofs are used to demonstrate the ownership of funds without disclosing the sender’s and recipient’s addresses.

But how on earth does that work exactly?

To break it down, here’s a simplified overview of how Tornado Cash works.

A person who wishes to enhance their privacy can deposit their funds into a Tornado Cash smart contract, which is just a type of self-executing contract that completes once the pre-agreed criteria have been met.

During this process, the user specifies the amount and type of cryptocurrency they want to deposit, as well as the desired anonymity set size.

The anonymity set refers to the number of other deposits mixed with the user’s deposit to obscure the source of the funds.

As you can imagine, if you trade only with one person the link isn’t very well hidden, and it would still be quite easy to figure out where your money had gone.

The more people participating, the more anonymous everyone is.

Then, once the deposit is made, the funds enter the mixing process.

Tornado Cash combines the user’s deposit with other deposits from the anonymity set to create a pool of mixed funds.

This mixing process helps to break the link between the source of the funds and the subsequent transactions.

Lastly, after the funds have been mixed, the individual can initiate a withdrawal request.

The user then provides a new Ethereum address where the mixed funds will be sent.

At this stage, the zero-knowledge proof is employed to prove the ownership of the funds without revealing the connection between the user’s original deposit and the withdrawal address.

The protocol is designed to ensure that even the operators of Tornado Cash cannot deanonymize or steal users’ funds.

Well, being blacklisted by the US government is pretty unique. Meaning, yes, it is illegal to use or access its services if you are in the US.

Now, we’re certainly not endorsing anything illegal, but all we’re saying is, you know you’ve made a pretty good mixer when the government is trying to shut it down.

And, if you’re wondering why, the U.S. Department of the Treasury has accused Tornado Cash of laundering over $7 billion in virtual currencies between its inception and the time the sanctions started in August 2022.

This seems to be in relation to the $455 million stolen by the Lazarus Group, a North Korean state-sponsored hacking group, which was then mixed through Tornado Cash.

On top of this, Tornado Cash was also used in the Harmony Bridge Heist, which saw almost $100 million get mixed through the app, and around $8 million in so-called Nomad heist.

Now, this does paint a picture of an illegal app being used by people only for illegal activities. However, I want to argue that this isn’t always the case and there are legitimate use-cases for such an App.

For example, Russian critics of the Ukrainian War have been using Tornado Cash to secretly donate funds to Ukraine, which includes Ethereum founder Vitalik Buterin, who donated through Tornado Cash the day after it was sanctioned by the US government.

As you can imagine, when you are a citizen of a country who is at war with another country, if you’re going to donate to the opposing side, you really don’t want a clear link showing you as the donating party, hence why a service like Tornado Cash is essential.

However, as a result of the sanctions, Tornado Cash’s founder, Alex Pertsev was arrested, and detained for 9 months. Although now waiting for his court date at home, the saga is far from over.

During this time, the DAO of the network was also hacked. Luckily, this DAO can only vote on proposals and doesn’t affect the functionality of TORN.

All of this while Tornado Cash still churns away in the background, highlighting that once the technology is out there, it’s very hard to then make it disappear.

Like all ERC-20 tokens, which is just a token standard or blueprint to ensure compatibility with the Ethereum network, the total supply was created in advance.

In total, there will only ever be 10 million TORN tokens.

Of the 10 million total supply, 5% was airdropped to early users of the protocol.

10% was gifted to anonymity miners – a defunct protocol on the platform which ended in 2021 and further increased anonymity.

30% was given to founding developers and early supporters and is unlocked over a 3-year period.

The final 55% went to the DAO treasury, and it will be interesting to see how the DAO hack plays out in the long run, given that no one except the hacker can no vote in DAO proposals.

In conclusion, Tornado Cash is an incredible tool for preserving anonymity while making Ethereum transactions.

Unfortunately, the Lazarus hack spelt a wave of sanctions against the platform.

Though, sanctions don’t stop decentralized networks, so Tornado Cash continues to mix away in the background.