Additional improvements include higher deposit limits, cheaper withdrawals, and Relayer features.
What is a cryptocurrency mixer?
Both Bitcoin and Ethereum transactions are publicly visible, and essentially pseudonymous. Due to this transparency, it can be relatively straightforward to track a user’s spending habits. Uncovering the owner of an address and exposing their entire transaction history would only require the user details in a single transaction.
Several solutions have surfaced over the years in order to avoid this. One of the most popular of these is the transaction “mixer”.
In a nutshell, a transaction mixer scrambles together the funds from multiple users and transactions, before each transaction reaches its intended destination. After mixing, it becomes difficult to trace whose money went where, and in which amount.
Traditionally, many mixers simply “spam” a large number of seemingly random transactions through multiple addresses to improve anonymity. Although an improvement, these transactions are all still traceable on the public ledger, and could be “figured out” using forensic work.
Further, many of these services are run by a trusted third party, which could run away with user funds or even track them.
What makes Tornado Cash better?
Tornado Cash is a privacy mixer for Ethereum, which takes the whole concept a few steps further.
Firstly, transactions are mixed using zero-knowledge proofs, which completely obfuscate transaction information. Whereas traditional mixers “spam” additional transactions in between sender and receiver, Tornado Cash scrambles user funds within a smart contract in a black-box environment, which isn’t visible on the public ledger.
Secondly, Tornado Cash is a decentralized service. Since it is run via a smart contract, no centralized third party takes custody or control of your funds during the mixing process. As long as the code holds up, you won’t have to worry whether or not your funds make it to their destination.
Tornado Cash Version 2
The updates in version 2 of Tornado Cash are truly exciting for the Ethereum ecosystem.
ERC20 integration opens the door for an enormous range of Ethereum tokens, no longer limiting mixing capability to Ether itself.
The first ERC20 coin integrated into the platform is Dai – the most popular decentralized stablecoin in cryptocurrency.
Deposit limits have also been bumped up 100-fold, with 1 ETH and 10 ETH options available.
Perhaps the most important update, however, is the new Relayer feature. This allows users to withdraw funds to brand new, empty wallets.
The reason this is so vital is that withdrawals should go to a brand new address, with no privacy-jeopardizing transaction history.
On Tornado Cash version 1, withdrawal addresses required a balance to pay for gas fees. Funding these gas fees, however, can ruin our intended privacy.
The new Relayer feature will generate a brand new address for you, and cover gas fees from within the mixer, saving your privacy.