Privacy without Terrorists

Transcript

[applause] >> Good afternoon, everybody. My name is Amin Soleimani. I am the CTO of Oxbow. Uh today, I'm going to talk about privacy without terrorists. Um before I start, I just want to say that I am very grateful to be American. Um it it's much better than the alternative uh from where my parents came from, and I'm in their debt for coming here to the land of the free, where uh we we we often take America for granted in the Cypherpunk space because uh all of our values and as Cypherpunks, sort of free speech and open source, are

depending on uh American laws, and we should be careful about weakening America uh because we might not like what other countries think about uh our so-called Cypherpunk values. Uh who here has heard of Tornado Cash? All right, everybody's hands go up. Um so I want to give a little background about how Tornado Cash got started. Um Tornado Cash was the original privacy protocol on Ethereum, and we built it because ETH nerds were jealous of Zcash uh uh for its private money features. Uh we didn't want to reveal all of our transactions every time uh we sent any

money and reveal the whole transaction history. So, in 2019, Moloch DAO, a punk rock nonprofit that I helped start, uh funded all of the initial grants for Tornado Cash. I personally uh wrote every grant proposal, and our final contribution to Tornado Cash was coordinating the admin key being set to zero so that the protocol was immutable forever. Uh it was the second ZK-Snark deployment in history after Zcash. Uh fun fact, we actually rejected the team for a grant and after they were denied the grant, they rage built the whole thing in 3 weeks.

So, we used it for personal privacy and uh Vitalik, who's always a hero, used it to send money to support Ukraine. Um things went wrong after North Korea stole over $600 million and started running hundreds of millions of dollars through the Tornado Cash system. And after that, the US Treasury on August 8th of 2022 uh sanctioned the Tornado Cash protocol. And Alexey and Roman were both charged and uh received 5-year prison sentences.

Alexey in the Netherlands and Roman, who was arrested at gunpoint at 3:00 in the morning despite uh cooperating with the police investigation into Tornado Cash, um he also received a 5-year prison sentence. It's been a while since I've been in New York. Last time I was in New York, uh me and all my friends were sitting outside the courtroom uh supporting Roman Storm. Uh I don't believe that the Tornado Cash devs should be held liable for the crimes of the users of the protocol. They had no criminal intent.

The Tornado Cash protocol itself was immutable and the devs could not do anything. And the devs had themselves built a compliance tool that allowed individual users to prove uh which deposit they came from. And uh they are both preparing to appeal their cases. The fight is still ongoing. And it's really important that they win this. We actually went into this trial for Roman thinking that privacy was going to be illegal because of the 20-year sanctions violation charge and the 20-year money laundering charge, but he was only actually indicted on the 5-year uh unlicensed operation of a money services business. But, the crazy part about that is that Tornado Cash was non-custodial.

And so, the result is that actually everything is illegal. Uh Etherscan could, under some interpretation of this, be considered a money services business simply because they provide the interface to write transactions to the Ethereum blockchain. It's critically important for our industry that this that Roman's appeal succeed and that uh this charge be overturned in court so that we have clarity for uh all of the Ethereum wallets and applications that we've built.

Uh and if you have the means, please support their uh fundraisers. And this is just another slide showing how they could not have stopped anything. Uh that second peak right there is when the sanctions hit, and this is the only protocol I know of that grew uh after the devs were thrown in prison. So, uh the the latest peak is sometime after the sanctions were lifted. So, the Tornado Cash team did not help North Korea receive privacy.

But, what about the rest of us? Are we not responsible for contributing to the anonymity set of the North Korean hackers? If North [clears throat] Korea was the only user, would it not have been super easy to trace their money? And so, I believe that with great power comes great responsibility. And the tools that we have built are so powerful that the the smart contract itself was declared a terrorist by the US government. And Alexey's judge, in his trial in the Netherlands, said there is no legitimate use case for Tornado Cash. And I think it's on all of us to correct this false narrative.

One of the outcomes that we could have is uh based on this Federal Reserve report on Tornado Cash, which was published in April 2023, and it provided a recommendation for regulators that users of Tornado Cash, they should be allowed to use it, but they should also be required to reveal which deposit corresponds to their withdrawals to a regulated financial institution. And they do say that crypto asset mixers such as Tornado are an integral part, but the problem with their recommendation is that it creates a massive honeypot of all of the financial records.

Uh and the users have to dox themselves. And so uh Vitalik, the chief scientist of Chainalysis, Jacob, and the two authors of that original St. Louis Fed paper, and myself, wrote a new paper about privacy pools. And this is uh In this paper, we talk about a different way of satisfying the regulat- regulators' objectives. The idea here is that users of a privacy protocol can publicly disassociate from illicit funds that might have been deposited into that protocol.

And so uh when users deposit, there is a a waiting period, and then um there is an association set that is generated of all of the deposits that are looked up to be not illicit, and the users can voluntarily publish a proof that shows that their deposit comes from one of those deposits without revealing exactly which one it is. And this is how we can separate the good money from the bad money while avoiding a data honeypot.

Uh this is uh Basel. How many of you guys know uh about the Tower of Basel and Bank of International Settlements? It's like the final boss of crypto. You'll figure it out. Uh I got to go there and present the uh paper and these are my uh co-authors. Um So, uh just the way this works is that users deposit, they wait for approval, we do a KYT check, know your transaction, on all of the wallets, uh and see where the source of funds is. And the funds from untrusted sources are rejected. Only the approved deposits can withdraw privately, and rejected funds can still be rage quit, which is a sort of escape hatch that allows them to

recover their funds, so that we're not freezing anybody's money, and so that the protocol can stay not custodial. We have had this live on mainnet for a year. It's anonymized over 20 million dollars. Uh we're seeing a recent uptick in stablecoin volume. We're We're very happy about it, but Privacy Pools version one was a proof of concept. Uh Privacy Pools version two is live today, and you can go check it out. It's uh working on Sepolia, and has a whole bunch of new features.

So, first of all, it has a shielded pool that allows private in-pool transfers, just like Zcash and Railgun. Shielded pools are really important because they help uh break the link uh not only in the amount um and the recipients, uh but like you can't correlate the timing either because you don't know which transactions are happening in there. Uh it's better than confidentiality, which is a recent buzzword, uh because the confidentiality hides the amounts but not the sender and receiver. Those are all public. And so this is a fully anonymous system where the sender and receiver are also hidden.

It has compliance by default where every transaction proves the membership set association. And so what that means is that if we accept money, we accept a deposit and then some point later that deposit is understood to be potentially illicit. We can now reject that deposit and remove it from the association set. And by doing that every single transaction that happens after that automatically proves that their money does not come from the deposit that we just rejected from our association set.

And so everybody else can prove that they are not the bad guys. You can sign up for this with any EVM wallet. You can pay people before they've signed up for this. You can make private payment requests that don't even reveal your in-pool address. And we're working on a way to make privacy pay you so that you can earn yield from D5. And we're also working on hardware wallet and multi-sig support. And I've got some nice gifts here that demo how this works.

Go on the testnet, check it out. There's definitely not going to be an airdrop. So don't expect anything. This [clears throat] is how the deposit flow works. And so you can preview the deposits. Um and you know, once you get deposit the money, it's in the pool, and then you have to wait a little bit for approval. It's faster on testnet. Um on mainnet, it's typically an hour, for larger amounts, sometimes a day or two two if we need to manually review it.

Um, and then once your money is in the pool, you can transfer it privately. And then confirm the transfer. And that allows you to send money in the pool to another user, and they can then receive it and spend it from there. And when you're done with the being in the pool and transferring, or you want to use your money somewhere else, you can make a withdrawal. And all anybody sees on the blockchain is that your money came out of the smart contract. That's it.

And if your funds are not accepted, or at some later point the deposit is rejected, uh, you will always be able to exit your money out of the system. And this is called the rage quit. They wouldn't let me call it rage quit on the UI, but uh, exit. Uh, and you can also do a private payment request. And in a private payment request, >> [snorts] >> uh, you don't actually need to reveal your own address. And somebody else can pay you, and then you can take the link that is generated when they pay you, and import uh, that link into your account and get paid.

And so, uh, I encourage everybody to check out v2.privacypools.com. Follow us on Twitter. I'm I'm in Seoul. Our project is Oxbow, spelled 0xbow. And we are, uh, privacy pools is the product we're building. And we are honored to have Vitalik as an investor, and he agrees with our uh, philosophy on this project. Uh, which is that the compromise we are making is that we've made it hard to get in and we also have the ability to exclude people uh that we see as having illicit funds.

However, uh we do not have any ability to retroactively de-anonymize people by default in the system. And we believe that this is a good compromise because uh having these backdoors in your systems can be used against you. Uh one of the funniest headlines that I read recently was uh Vladimir Putin questioning his centralized surveillance system that they have in Russia after observing how the centralized surveillance system that the Islamic Republic of Iran was using was exploited by the Israelis and uh resulted in a whole bunch of them being turned into kebabs.

So, uh it's uh thank you Israel for pointing out the weakness of some centralized surveillance systems. And I think that in the future we will all consider privacy a national security concern and we will take it even more seriously than we are today. And I look forward to doing this in America as an American so that we can earn the right to have non-custodial privacy systems forever. And if we win here, we win it for the world. Thank you very much.

>> [applause]