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A Look at the Best Tornado Cash Alternatives
As control and surveillance over traditional currencies expands, so too does demand and regulatory scrutiny for privacy coins and tools. The world saw the heavy hand of the law come down upon Tornado Cash in early August of 2022. The Office of Foreign Assets Control (OFAC) implemented an outright ban on the use of Tornado Cash, an Etheruem based coin mixing service.
Any address that has used, or will ever use Tornado Cash in the future will find their address on a blacklist, which may prove to be problematic when using other dApplications within DeFi ecosystems.
This event sparked controversy as well as a couple of questions. For example, aren’t cryptocurrencies supposed to be resistant to censorship? Aren’t decentralized applications supposed to not be able to restrict the use of their platform? Finally, are there alternatives to Tornado Cash that will be able to stand up to OFAC and other regulators?
Not-So-Decentralized Apps
If nothing else, this ban on Tornado cash and the subsequent compliance by Ethereum dApps such as Aave and UniSwap reveals something crucial. That not all applications on Ethereum are as decentralized as we might have thought, or hoped.
Shortly after the announcement of the ban, Aave and UniSwap quickly added a list of addresses targeted by OFAC to a blacklist. Any funds that these addresses had within their applications were frozen.
This demonstrates that when push comes to shove, administrators and developers of popular applications can be called upon to bend the knee to the authority of regulators.
Monero, zCash, and Grin
So then what alternatives exist for people seeking financial privacy? There is of course the classic cryptocurrencies that have been built from the ground up to prioritize privacy.
We’re talking about zCash, Monero, and Grin. All three cryptocurrencies have unique cryptographic implementations that obscure transactions that take place on their respective networks. Of the three, Monero and zCash have maintained some semblance of relevance since their launch. However, they face challenges of their own such as being listed on exchanges.
These coins have proven difficult to obtain because of the regulatory taboo of listing them on exchanges. Because of this, they’ve failed to gain meaningful relevance and remained more of an obscure and niche privacy tool, rather than something that is viable for protecting one’s financial privacy.
Spinner Cash
We turn to another application called Spinner Cash, which is a smart contract modeled after Tornado Cash deployed on the Internet Computer. Any token that is compatible with Internet Computer can be “spun” or “mixed” to give the user financial privacy.
There is no blacklist, nor is there a way to “undeploy” Spinner Cash once it’s been launched.
Due to the way that Internet Computer handle tokens from other protocols, BTC for example, it is difficult to link the Internet Computer address using Spinner Cash to the BTC input and output addresses.
Whether or not coins spun using Spinner Cash will ever be traceable back to the user remains to be determined.
Bitcoin Privacy Tools
In my opinion, financial privacy tools are irrelevant unless you can use a currency with a wide degree of acceptability. What good is privacy-preserving Monero if you cannot spend it? This is the appeal behind Bitcoin-specific privacy tools such as JoinMarket or the Lightning Network.
They’re leveraging the worldwide recognition, adoption, and acceptance of Bitcoin and building privacy tools on top of it, rather than trying to build a whole new coin.
JoinMarket
JoinMarket works a lot like SpinnerCash or TornadoCash. Your coins go into a metaphorical bag along with other people’s coins (this is called a CoinJoin). That bag is shaken, and everyone withdraws the nominal amount of coins they put in.
The coins any user puts in inevitably are different from the coins that everyone withdrawals, obscuring the traceability of all coins from all users in the process.
The problem here is that tools like CipherTrace can determine whether or not a wallet has engaged in CoinJoins. That can prompt some regulators to tag your address as “tainted” out of mere speculation that you were using CoinJoins for malicious purposes.
The Bitcoin Lightning Network
Now we’ve finally arrived at the Bitcoin Lightning Network as a privacy tool. We won’t go into the nitty gritty details of how the Lightning Network actually functions and performs its magic, but here is what you need to know.
- Bitcoin transactions on lightning are instant, next-to-free, and are final settlement
- Transactions are not recorded on-chain
- Transactions can be completely private and peer-to-peer
To break this down – a truly anonymous bitcoin transaction could take place between you and someone else, and the only record that this transaction occurred would be in the hands of only you and that person.
The Winning Alternative to Tornado Cash
Given what we know about the Bitcoin Lightning Network, it seems like it is the winning alternative to Tornado Cash. It exposes no details about its users and can process any number of payments instantly and for next to no cost.
It uses a completely different privacy model than Tornado Cash, Spinner Cash, and JoinMarket as the coins that change hands on Lightning are never mixed with others.
All transactions take place in a peer to peer way, just like cash. The Lightning Network was ultimately modeled and intended to give Bitcoin the ability to transact like cash. After all, we all know that cash is still the ultimate way to preserve your financial privacy.
