The censorship battle over financial privacy escalated when the US Treasury Department’s Office of Foreign Assets Control (OFAC) sanctioned the popular Ethereum-based mixer Tornado Cash in August. This followed a similar action against a bitcoin blender, Blender.io, and its associated wallet addresses. The rationale was the reported use of these services by North Korean hackers to launder stolen crypto funds, despite their legitimate uses to protect privacy and personal information in a range of contexts where doing so is beneficial.
A strong case can be made that Blender.io has enough human-controlled components to make it a sanctionable entity. By putting bitcoin in Blender, users entrust custody of their tokens to its operators. But in the case of Tornado Cash, the smart contract addresses running the service and any Ethereum address that has ever used it have been placed on OFAC’s Specially Designated Nationals List, locking down the associated assets and prohibiting any use by US entities.
With new decentralized privacy solutions on the horizon like Spinner Cash, which works with native bitcoin (currently BTC testnet), the implications of the federal government’s overreach against the smart contract code will only get more complicated. Coinbase is already fundraising for a trial challenging Tornado Cash penalties filed by six plaintiffs who used the service legitimately, arguing that the government exceeded its authority and violated the First Amendment.
In 1996, in the judgment of Daniel J Bernstein v. United States Department of Justice which allowed encryption software to be released despite federal objections, a U.S. court found “no significant difference between computer language, especially high-level languages as defined above, and German or French… Like music and mathematical equations, computer language is just that, a language, and it communicates information either to a computer or to those who can read it.
This means the code and software is protected speech under the First Amendment and the government is trying to ban techniques that simply use math to protect privacy.
There are two main implementations of cryptographic solutions that use code to protect financial privacy. The first can be likened to a bag in which many people put their coins. The bag is then shaken and a different set of coins are redistributed to the depositors. One example is CoinJoin privacy software like JoinMarket. The problem is that the implementation usually requires a centralized entity to take possession of your parts to do the mixing.
Tornado Cash and the recently launched Spinner Cash are unique in that they enhance this practice using a cryptographic method called evidence without knowledge (zkSnark). While Tornado Cash is based on Ethereum, Spinner Cash currently interacts with the native bitcoin testnet, as part of a direct bitcoin integration via the Internet Computer blockchain which will generally be released this year. Both services have been deployed in such a way as to eliminate any operational dependency on centralized entities.
As the Coin Center think tank said in a commentary against the Tornado Cash sanctions: be installed on the Ethereum network. such that once installed, the person who installed it no longer has any control over it.… It will continue to function as long as the Ethereum network continues to function.
where is it going
Given what we know about the problems with centralized privacy solutions, the government’s willingness to go overboard on free speech, and the resilience of decentralized services such as Tornado Cash and Spinner Cash, the ideal service can therefore be defined as follows:
- Once deployed, it cannot be stopped.
- It runs on a sufficiently decentralized infrastructure.
- It includes sufficiently decentralized cryptocurrencies such as BTC and ETH, since the USDC freeze associated with Tornado Cash accounts has shown that USDC can easily be frozen and rendered worthless to users.
Tornado Cash and Spinner Cash are the two services that most adhere to the above criteria. Although Tornado Cash has been criticized, Spinner Cash is notable because its recent emergence and focus on native bitcoin is a strong indicator of further development in this space and how future privacy solutions are likely to be implemented. . Spinner Cash shows how new projects in this space view privacy as more than a “mix of coins”.
Although relatively unknown, Spinner Cash’s unique design allows it to privately manage bitcoins on-chain, without a bridge, as Internet computer bitcoin integration and threshold ECDSA signatures allow smart contracts to create addresses bitcoin and directly send and receive bitcoins. Spinner Cash has no registration of user accounts or addresses, and no gas fees. His application of zero-knowledge proofs to the world’s largest, most important, and most tested cryptocurrency demonstrates the potential of what superior crypto financial services can look like. It also plans to provide more utilities, including token exchanges that preserve privacy, promoting more legitimate use cases in the DeFi space.
1. No other BTC mixer is decentralized or governed by smart contracts.
2. No other BTC mixer allows private transfers between users.
3. No other BTC mixer gives you the DEX feature (but we will soon!)
TL; DR: Spinner is much more than a blender!
— Spinner (@spnrapp) August 5, 2022
The action against Tornado Cash has created uncertainty in this space, with intense scrutiny of how legal challenges against the government’s overreach against smart contracts will play out. It highlights the importance of having safe and effective privacy-focused services, and the challenges of implementing them with the necessary resilience.
Although Spinner Cash has yet to receive mainstream attention or adoption from the bitcoin community, it does show where this space is heading. Bitcoiners naturally resist using anything not native to Bitcoin’s base chain or the Lightning Network, but Bitcoin-enabled smart contracts on the internet computer are about as native to Bitcoin as possible. Smart contracts handle actual Bitcoin UTXOs trustlessly and atomically, which might be the best approach to decentralized privacy solutions we’ve seen so far.