Tornado cash has been lately popping up in the Web3 hack news, where hackers use it to route the looted cash. The hacks and the related figures are proportionate to the attackers leveraging Tornado cash for the transfer of funds, leaving no traces.
The US treasury banned its usage in the wake of $7 billion in stolen cryptos allegedly laundered through Tornado Cash since its launch in 2017, which brought us to analysing Tornado cash in this blog.
What Is Tornado Cash?
Tornado cash is an open-source Dapp built on the Ethereum network that allows conducting private transactions in a public Ethereum network. The privacy-enabled Tornado cash morphs the identity of the user performing transactions.
Thus it maintains the anonymity of the transactions by severing the link between the entity/person transferring funds and the receiving address. Let’s find out how it works.
How Does It Work?
Tornado cash employs a mixer contract whose working can be better understood by considering it analogous to a juice mixer wherein all the contents included get mixed up in the jar.
Likewise, the funds are sent to the Tornado mixer contract and added to the pools. It uses zero-knowledge proof systems to hide the identities of the sender and the receiver address.
Being truly decentralized and non-custodial in nature, the users are in complete control of the funds. Also, the Tornado cash design is that a set fee amount on every transaction goes to the operation.
The Logic Behind Its Working
Since it operates on the Ethereum chain, Tornado cash uses the ERC-20 token standard. As mentioned earlier, it follows a zero-knowledge proof (ZKP) through which the privacy of the transactions can be ensured as it does not require the disclosure of secret passwords for authentication.
Having said that, Tornado cash that works of ZKP pretty much explains the logic behind it. It requires a wallet to be installed, which is then connected to the Tornado cash. Users can then deposit the amount they are willing to transfer on the Tornado cash.
Once the deposit is successful, Tornado cash generates a private note as a secret hash. Now, storing this key is important as this needs to be entered for withdrawal of the funds by the receiver.
The cash is then mixed in the pool, and there is a wait time between the deposit and the withdrawal of the funds. The receiver then can enter the private note generated to confirm the transaction.
All throughout the process, Tornado cash ensures no on-chain data is available that links the sender and the receiver, thus staying completely anonymous.
Furthermore, the decentralized platform adopts TORN, governance and utility tokens. All decisions regarding the platform are left to the voting based on the TORN token holders.
Tornado Cash – A Clutch For Hackers
Finance reports stated that over $10 billion transactions had occurred in Tornado cash. Also, a rising number of hackers exploit the platform to do illicit fund transfers.
The privacy in transactions lays an ideal ground for hackers to transfer the millions of assets stolen while staying anonymous. And the cash inflow into the pool is said to have increased after Axie Infinity’s Ronin network attack.
Here is a mention of a few hacks wherein the hackers used Tornado cash to make fund transfers.
Ronin bridge hack worth $622 million happened because of a private key compromise in which the stolen assets were found to use Tornado cash. Apart from this $375M Wormhole attack and $100M Horizon bridge hack also used Tornado cash.
Is The Tornado Cash Ban A Laudable Move?
Though the move by the US treasury to ban Tornado cash was to restrict the hacking means, a lot of ordinary legitimate investors are deprived of the benefits. Users who want to maintain their privacy of transactions in the still nascent crypto market find it uneasy.
Ace Your Web3 Project’s Security With QuillAudits
QuillAudits is making its active contribution to making Web3 a safer place. Our experts are available at your service for any consultations on securing your Web3 projects and ensuring its robustness.