Privacy Pools, a fork of Tornado Cash, released on Optimism's testnet

Ameen Soleimani, the co-founder of SpankChain, launched a crypto mixer called Privacy Pools, which is a fork of the U.S.-sanctioned coin mixing app Tornado Cash on the Ethereum Layer 2 network Optimism's testnet.

Privacy Pools, which is in the version 0 phase, aims to be an alternative to Tornado Cash, allowing users to send and receive ether anonymously. The platform will separate funds linked to criminal activity, hoping to find a balance between privacy and regulation, and differentiate itself from Tornado Cash. Currently, it is available on Optimism's Goerli testnet and may be deployed to the Optimism mainnet at a later date.

"In my personal opinion, Privacy Pools is strictly better than Tornado Cash. With Privacy Pools, just because someone deposits into the same smart contract as you, it doesn't mean they can force you into sharing an anonymity set with them," Soleimani said, referring to the idea of isolating funds from identified illicit actors.

Finding a middle ground

Last year, Tornado Cash faced severe legal challenges over accusations that it was used by North Korea-linked hacking group Lazarus.

In August, the U.S. Treasury Department's Office of Foreign Assets Control (OFAC) blacklisted the use of Tornado Cash and certain Ethereum addresses connected to the app, citing its use by cybercriminals for money laundering. Alexey Pertsev, a developer of Tornado Cash, has been in custody of Dutch authorities since last summer and is currently detained until a hearing scheduled for this April.

Soleimani added the project will use data from blockchain analysis firms Chainalysis and TRM Labs to identify blacklisted Ethereum addresses used by malicious actors. This will help users to create their own subset exclusion lists manually and ensure that they do not interact with illegal funds. By partnering with these analyst firms, Privacy Pools hopes to provide a safe and reliable platform for anonymous transactions, as noted by Soleimani.

Since any funds associated with illegal activities are kept separate from other funds on the platform, it can potentially make it safer for users. However, due to the legal challenges faced by Tornado Cash, it is uncertain how regulators will respond to Privacy Pools.

Soleimani acknowledged that Privacy Pools v0 is not the final product and hopes to initiate a conversation that will aid regulators in understanding the potential advantages of balancing privacy and regulation.