Anonymous transactions on Ethereum: Is Tornado.cash the solution?

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• According to Vitalik Buterin, Tornado.Cash is a promising solution for Ethereum, which will implement completely anonymous transactions on the ETH blockchain.
• The last shortcoming regarding the centralization of Tornado.Cash is currently being fixed.

If you follow the inventor of Ethereum, Vitalik Buterin, on Twitter, you will probably have read about Tornado.cash quite often lately. The technical solution to make Ethereum transactions completely anonymous was recently mentioned by Buterin, along with Uniswap, Status, MakerDAO and ZK rollups, as a solution that makes the Ethereum network of 2020 significantly better than the version in 2017.

Things Ethereum has in 2020 that it did not in 2017:

* Uniswap
* https://t.co/wwBUgU78ob
* Status
* MakerDAO
* ZK Rollups (eg. Loopring), >2k TPS capacity
* PoS testnets
* Uncle rates < 10% with 10m gas blocks
* Gitcoin grants

Move the goalposts faster, or else we'll catch up!

— vitalik.eth (@VitalikButerin) March 27, 2020

What is behind Tornado.Cash?

Tornado.cash is a solution that makes all ETH transactions anonymous. By default, these and the balances in the ETH blockchain are public. All transactions can be viewed using block explorers such as Etherscan, and each user can check how much Ether (ETH) a particular address has. Although there have been several approaches in the past to remedy this lack of anonymity, mixers, for example, are not an option for most users, as their own funds may be associated with “criminal” ETH.

Tornado.cash solves this problem and allows Ethereum to send 100% anonymously by breaking the on-chain connection between recipient and destination address. To do this, it uses a smart contract that accepts ETH deposits that the user sends from a different address. Whenever the user transfers ETH away from this address, there is no way to link the withdrawal to the deposit, so privacy is fully guaranteed. To ensure this, Tornado.cash uses zk SNARKS, the technology on which Zcash (ZEC) is based, and acts as a proxy to ensure that the transaction is anonymous.

However, as Ameen Soleimani, CEO of SpankChain and founder of MolochDAO noted, Tornado.cash still has one major problem, it is not completely decentralized:

The dirty secret of Tornado Cash is that it is controlled by a multisig, and the trusted setup was done on a single machine.

To fix this problem, the project has currently received 40,000 USD from MolochDAO to fund a trusted setup. This will allow Tornado.Cash to reach its full potential and be completely anonymous, as Soleimani said:

The objective is to perform a legit trusted setup, then ditch the admin multisig and lock the contract open, so we have privacy on Ethereum until the heat death of the universe or the end of time, whichever comes first.

This trusted setup will also be able to be re-used for other privacy implementations beyond Tornado Cash, should that be desired.

The implementation of the full decentralization of Tornado Cash could thus be an important milestone, not only for the project, but for Ethereum in general.

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