In a world where monitoring is progressively tightened, where do cryptocurrencies stand? The most popular among cryptocurrencies is Bitcoin; however, it is simply pseudonymous and not anonymous. According to a recent discovery by one of the crypto exchanges, funds prove that the blockchain for Bitcoin is open to the public and transparent.
In other words, crypto-assets can be tracked if there are enough bits left behind to link a person’s identity with a wallet address. Monero (XMR) and ZCash (ZEC), two privacy currencies, are one approach to maintaining the cryptocurrency component of the market. But with so much money now committed everywhere, there are more sophisticated ways to guarantee that internet transactions stay secret, such as Tornado Cash (TORN).
In this blog, we will have an overview of Tornado Cash. Are you ready to deep dive?
Tornado Cash is an Ethereum-based decentralized and non-custodial solution for privacy and anonymity. The anonymity of transactions is increased by severing the on-chain connection between coin senders and recipients.
Ethereum serves as a framework for decentralized protocols like Tornado Cash (TORN), which allows for anonymous token transfers. The Zcash privacy currency technology has contributed to the success of this token mixing platform. Tornado Cash uses Ethereum’s ERC-20 standard for transactions.
As a result, you may ask for coins to be sent to Tornado Cash and get money in your wallet in return. Since Ethereum is a public blockchain, this approach guarantees that your financial privacy is protected.
Tornado Cash leverages smart contracts to ensure anonymity by allowing token withdrawals from one address while accepting token deposits from another. These smart contracts function as pools that combine all assets that have been deposited.
When money is taken out of such pools by a brand-new address, the on-chain link between the source and the destination is severed. As a result, the removed crypto-assets are anonymous.
A closer look at the working of Tornado Cash
Tornado Cash is related to private cryptocurrencies like Monero (XMR) and Zcash (ZEC), as you might expect. However, these privacy coins are private because they use zero-knowledge proof, a crucial component of cryptography.
ZKP, or Zero-Knowledge Proof, is the most secure kind of authentication that may be used.
Why? Since it doesn’t need the sharing of passwords. As a result, passwords cannot be compromised. In other words, ZKP enables users to authenticate themselves without disclosing their sensitive information.
The protocol is known as Zero-Knowledge Proof since the authentication doesn’t ask to reveal any secrets.
The so-called Yao’s Millionaires’ problem is one of the most well-known examples used to illustrate ZKP. If two millionaires want to compare their financial situations without divulging their individual sums of money, they will use ZKP.
Any circumstance requiring proof of identification without knowledge follows the same general rule.
After the ZKP explanation, it is simple to comprehend how Tornado Cash functions. First, Tornado Cash generates a random key to deposit your ERC-20 crypto money, just like Alice (verifier) gives Bob (prover) an unexpected route back to prove his identity.
Tornado Cash breaks the on-chain connection between wallets by using this random key generation between the sender and the recipient. Technically speaking, Zcash and Tornado Cash both use a variant of ZKP known as zk-SNARK proofs (short for the zero-knowledge succinct non-interactive argument of knowledge).
Pros and Cons of Tornado Cash
- Tornado Cash is a cryptocurrency “mixer,” or service that gathers coins and distributes them to new addresses. Unquestionably, this system’s ERC-20 interoperability is one of its key advantages.
- On websites like CoinMarketCap, we can locate the system’s token, which is typically a technique to get more market traction.
- Users that support the project’s privacy functions are rewarded with liquidity through the anonymity mining feature. This feature seems to be able to enhance the anonymization of transactions through Tornado Cash permanently.
- Last but not least, Tornado Cash provides a relatively straightforward set of tools on the market for investors concerned about privacy. If you want to reach a huge market, user-friendliness is a crucial business component.
- Since mixers have been around for a long, they don’t affect the game. Even if you utilize one, remember that it will make a lasting impression on your address.
- Anyone can tell whether you use a mixer on your wallet by just browsing Etherscan. Evaluate if you are willing to take this risk.
- Authorities may contact you about the situation as crypto law becomes more stringent. Regulators could query your use of a mixing service in the past. Those who decide to participate in illegal activities must accept the repercussions of their choices.
- Among its drawbacks is the potential for a hacker to abuse the system. If lawmakers opt to tighten crypto regulations, Tornado Cash and similar alternatives will undoubtedly be at the center of the regulator’s evaluations.
- Last, seasoned Tornado Cash users frequently criticize the absence of anonymity features.
For some people who cherish their privacy, Tornado Cash might be a godsend. However, some users may occasionally find the anonymity offered by the service less than desirable. A service that helps customers maintain their identity and privacy is what Tornado Cash is. While doing so, it seeks to guarantee freedom from interference by outside authorities. The above section suggests the advantages and disadvantages of this decentralized cryptography system. Always have an open mind before you take any step and DYOR.
Disclaimer: Cryptocurrency is not a legal tender and is currently unregulated. Kindly ensure that you undertake sufficient risk assessment when trading cryptocurrencies as they are often subject to high price volatility. The information provided in this section doesn’t represent any investment advice or WazirX’s official position. WazirX reserves the right in its sole discretion to amend or change this blog post at any time and for any reasons without prior notice.