Why Privacy Matters | Ameen Soleimani | ETHDam 2023

foreign [Music] so welcome to the second half of day one at Eve Dam um I hope you're all having a wonderful time you buddies of field and you are sufficiently caffeinated if you're not I'm pretty sure you know where the nearest coffee machine is um so first up we have a talk about why privacy matters and I shall leave the stage enjoy hello uh my name is Amin solamani I'm here to present a talk I've rebranded to now why privacy matters uh I originally gave this talk at youth Denver about two and a half months ago in early March it's going to go over some of the uh well let me hit the next slide uh agenda first we're going to talk about why privacy matters then we're going to talk about the history of tornado cash and then we're going to talk about privacy pools version zero and next steps and then I'm going to cover some of the updates uh since East Denver that we have so why privacy first and foremost it's because privacy is normal you [ __ ] freaks don't let anybody tell you otherwise it's deeply sociopathic to try and get everybody else to reveal all of their secrets for your benefit also because full surveillance Central Bank digital currencies are coming they're going to have like expiration times for your money certain things you can or cannot buy and it's very important that we preserve Alternatives and maintain our own privacy and because governments abuse their power like all the time my favorite example of this actually comes from a talk that Zuko gave on bankless where he described how the countries that had really good kyc databases of who everybody was including their ethnicity and religious background uh like you know who is all Jewish uh were you know the Nazis were very excited to discover this because it let them hunt down all the Jews now when I give this talk to Denver actually got it wrong I said it was Poland that he cited as an example and I went back and looked at it today and it's the Netherlands so uh also because the future that we are preparing for is every human against every abusive government on the planet that's why we build code that's open and public goods I'm going to give a little backstory about tornado cash some of this might be overlapped from the discussion we had earlier but you know I'm gonna repeat it ethereum nerds wanted a mixer for personal privacy right this is all public blockchains when you send transactions your whole history is there for anybody to see and the way we were doing privacy before is like run our money through coinbase which as we discussed is not a very sophisticated privacy preserving strategy because any low-level support engineer at coinbase can be bribed to reveal your transactions to anybody who wants so to make this happen Malik Dao gave the first grants to tornado cash it was the second CK snark deployment in human history there was a thousand person trusted setup ceremony and after being a finalist there were two teams that were considered finalists for the first mixer grant that Malik gave and we picked the other one not the tornado cash team and they were so upset they were so pissed off that they actually built the entire DAP in three weeks after being rejected by this and so then we went back we gave them a retroactive grant for the work that they'd already done and paid for all of their future Dev Audits and The Trusted setup and the audits for The Trusted setup and Etc the final contribution that Malik Dao made was to make sure that the admin key was set to zero so that down the line we wouldn't be you know liable for things that uh you know could go wrong I'm very glad we made that decision uh had we not the future might things might have looked a little bit different everything seemed to be going fine until uh some things happened North Korea allegedly you know stole a bunch of money from a video game uh why a video game had 600 million dollars is a different story but they stole it all and then they put it in some wallets and they started depositing some of it into a tornado so on March 29th they hacked axi Infinity they started uh running some money through blender uh the ofax sanctioned that on May 8th and then on August 8th ofak sanctioned the tornado cash contracts which North Korea allegedly used to mix a 100 million dollars and that same week the Netherlands arrested Alexi herzev and the all of the people in this picture are awesome for showing up to represent Alex uh in uh I think that was here and so uh you know incredible show of support by the community I don't think very many of us expected this and we were all uh surprised and and really grateful for the outcry of Community Support one of the interesting things on there you know if you read some of these they say open source is not a crime privacy is not a crime one of them says will will you arrest the gun maker for facilitating and public shooting now that's not necessarily the best thing that we want to use as an example but it does make the point that you know when gun manufacturers create and sell weapons they're doing it presumably because people want to use them for home defense right and so it is not necessarily the liability of the manufacturers of these defense tools when Rogue actors use them for malicious purposes and similarly we should free Alexi so he wasn't this is a little outdated he was in jail for six months for writing code he's accused of money laundering and was you know denied bail now he's under house arrest walking around here with an anklet uh still should have been I think not you know under house arrest the whole time because ankle Technology's been there they just did that to mess with him um and if you can you know please consider donating to his legal defense fund it is at free alex.tokensoft.com Malik Dow has donated 200 ethnosis has donated some and one inch has donated some as well thank you all for contributing uh in in the aftermath of uh tornado cash U.S citizens can no longer use tornado cash U.S citizens with funds in tornado cash have to petition ofac for a license to withdraw their funds and so now only criminals non-us citizens and authorized U.

S government employees there is a line in there that uh made an exemption for authorized U.S government employees I wonder who they are are allowed to use tornado cash you're very welcome um and and further promoting the use of tornado cash can be considered conspiracy to violate International sanctions uh the way they got Virgil was not actually on violating International sanctions it was conspiracy you just tried hard enough to violate it that it was fine so this is a chart of tornado cash deposits and withdrawals uh as a as a marsh I didn't make it it's actually higher now than it was then uh this just uh goes to show you can't actually ban tornado cash you can just ban you know America from using it or your citizens from interacting with it uh it's you can see the the part in which they banned it there were some withdrawals after that but then it sort of slowed down but even though these numbers are are smaller now it's not track to anonymize something like 250 million dollars one of the most interesting things that happened as a result of tornado cash was the St Louis Federal Reserve Bank published a report on it which was the best report I've ever seen written about it and they explore the trade-off between regulation and privacy they're making recommendations to the government about how to regulate tornado cash and so they say that they believe users should have uh they should be able to use this and they called it uh an integral part of public blockchain infrastructure but they want users to have to use the compliance tool that tornado cash created themselves in order to send receipts to a financial intermediary so when you go to coinbase you have to say hey look I I brought some money from tornado cash but here's my receipt it says who I am and that gives you privacy from everybody else on the blockchain but not The Regulators The Regulators still have your full transaction history and it still suffers from the same problem that once coinbase knows how to correlate your deposits and withdrawals well once again low-level support engineers at coinbase can be bribed to reveal your whole transaction history so we want to do better than this we want to fix the critical flaw that we believe tornado cash had users weren't able to prove that they weren't associated with North Korea or any other terrorist group or illicit source of funds and so vitalik had an idea and he said what if users could prove that they weren't some subset of the deposits and so this brings us to what you know one way I like to call it is self-sovereign anonymity users can choose to exclude some subset of depositors when they withdraw and they can do this without revealing who they are so I'm going to switch to the uh vitalik's first description of this idea that you can do right is uh you can create a like say tornado cash like mixer where when you withdraw in addition to just making as your knowledge proof that proves that like you have you have a valid deposit and that you're valid deposit wasn't spent yet you could also make a zero knowledge proof that says this withdrawal is is not part of like one of this set of deposits or this one stroll is part of one of this subset of deposits so you would not reveal exactly who who you are you would not even reveal exactly who you are to like one specific group so like it's this is not like one of those uh back door key type of proposals right but what you would be doing is you'd be saying like I am some participants in this ecosystem it's but I like I am not a hacker like one simple thing all right thanks vitalik and back uh okay so I'm going to now show a demo of this and we'll see it in action I'll see if the sound comes through on this one uh I'm gonna actually I'll just narrate it myself uh so this is our demo of privacy pools it was live on optimism uh Gourley test net uh so this allows you to make a deposit so right now it's showing that you can deposit you know 0.001 eth or 0.01 eth so we pick one and then we click the deposit there's some you know off-chain metamask confirmation that's happening uh and once it succeeds I've made this deposit and so then I can go to the withdrawal Tab and I can prepare my withdrawal and so I can click this the subset maker and so this is a very rudimentary demo right this is just meant to explain the concept and so once you click the subset maker it shows you all of the deposits that have been made and you can just point and click and be like yep I'm not this guy I'm not that guy I don't like them you know and you can exclude them from your withdrawal and so that way when you do withdraw everybody can see that you are not these people and so you create a Merkel tree out of those subsets you get the Merkel root and then you submit that with your withdrawal you generate a ZK proof that encodes it and you submit it with your withdrawal and it actually broadcasts that the root on chain and later on uh people are able to go so I've you know successfully withdrawn now you can go to the Explorer and when you go to the Explorer you can see all of the different withdrawals and you can look at a specific withdrawal and then you can look at the specific excluded and included deposits and if you look at the excluded deposits there you see exactly the deposits of the person excluded and so you can be like hey I'm not the bad guys right I think I had even worse hair that day than today but uh yeah so we we built this we built the demo for it and uh yeah it it's on optimism check it out it's on privacypools.com so I believe that this is actually better than tornado cash uh because it gives you more sovereignty as an individual when you use tornado cash it's you don't really have the choice of whether or not you get to associate with all of the other deposits maybe I don't want to associate with you know the terrorists like uh before I didn't really have the choice um and and maybe there's other groups that I also don't want to associate with like illicit hacker you know in defy and so forth and so this doesn't force you to share an anonymity set with anyone you don't want to it's your choice some might think that this is narkware uh that we're you know building for the the cops or something and I I don't believe so and the reason why is because as I said uh this gives you more sovereignty more Choice which I think is is ultimately better so the reason we're doing this it's you know Meme driven development um I we ship this demo to start a conversation so we could talk to The Regulators talk to the relevant stakeholders and Advance this idea a couple months ago when tornado cash was properly sanctioned I was somewhat demoralized I didn't realize that something like this was even possible that you could do this and I you know I I saw the the systems that you're like introduce a back door and uh and like reveal your whole transaction history and I didn't like those very much but then when vitalik came up with this idea and people you know were ready to implement it and we built this demo like then I knew that uh we had to do this right now and in order to start this conversation before The Regulators take action to decide the final rules based on like tornado cash you know as it existed we can help them understand that there's a more attractive equilibrium and so it's going to take a lot of people to make this work uh people entities like analysis trms need to be able to do Trace backs on deposits so that users don't have to manually you know point and click uh the deposits that they want to exclude that's not a very scalable system it doesn't actually work it's great for demonstration purposes and then we need UI providers to reference those lists so our Squad goals and so this was before I was saying you know we're looking lfg looking to support some more teams and helping make this happen interested in collaborating uh please join our privacy 2.

0 discussion group and now we'll get into uh the updates actually shout out to privacy uh the chainway they made a proof of Innocence thing it's roughly the same thing as privacy pools except it applies to the existing tornado cache instead of being a separate contract be sure to check out their work too so update so this is new slides I just added in the lunchroom uh so we have a telegram channel of about 100 people across the industry it's you know representatives from chinalysis trm ZK devs coinbase people you know a pretty wide swath if you're interested in contributing uh please let me know and I'll add you to the group one of the important updates we have is you know uh the guy who wrote the St Louis Federal Reserve paper uh we had a conversation with him and he likes privacy pools Europeans surprisingly uh seem to understand the benefits of privacy a little bit better than Americans who simply want to spy on everybody uh and tentatively working with him and vitalik and a representative from chain analysis to do a new paper which will explain the benefits of privacy pools and make a new regulatory recommendation I've also engaged a former associate director at ofac as my lawyer so that we can go into ofac and present privacy pools to them and you know show them how it can help The Regulators accomplish their goals which is isolating the illicit funds so that their anonymity sets are smaller also please don't sanction this new thing this is the kind of thing that I'm hoping to educate people about this is a really funny example where after we launched this demo Somebody went and withdrew so there's a tornado cache on ethereum Gourley it is also sanctioned uh but somebody took ether out of the sanctioned tornado cash on Gourley bridged it up into the optimism Gourley and then deposited it into our privacy pools and so I tweeted this which is hello ofac violation detected deposits number 63 and 80 came from the ofax sanctioned Gourley East tornado cash contracts uh please exclude them when you withdraw and that's the kind of thing that you can do now and the kind of thing we're trying to automate so how do you automate this uh we're planning on building an MVP of this we're already in the process and uh we're going to have a single you know canonical exclusion list to start with it'll be managed by something you know placeholder name is list Dao and the purpose of list out is that it is employed by users to curate the best possible anonymity set it Aggregates labels from multiple different blockchain analysis companies the objective is to maximally detect illicit activities with the minimum number of false positives and also make it easily forkable in case other people down the line want to create their own list styles so in order to do this you need databases of all labeled transactions we have a time delay enforcement so uh you might wonder oh well what if I deposit and withdraw right away are you tracking all of the addresses on the blockchain and the answer is no for chain analysis and people like trm to work their magic and run detection they need to do a trace back so it's once funds are deposited into the Privacy pool then the traceback starts in order to determine whether or not those the sources of that funds are illicit or if it's okay and so automatically everybody will exclude uh we'll pick a number let's call it a week and they'll exclude all of the deposits from the last week when they withdraw to say I'm none of the deposits in the last week and that gives time for the vendors to go and do the trace backs and make sure that they're not from illicit funds uh and so then you know it would label the transactions and generate these proofs it would periodically update a Merkel tree uh Merkel root on chain and make the Merkle tree available so that uh individuals and entities can verify that the uh deposits were properly excluded and then it would also yeah provide this data to anybody else who's asking for it via API the reason we have to do all this is because the code isn't actually the hard part for something like this not getting sanctioned is the hard part and in order for that to work you need deep Integrations with data analytics rooms like genelysis to build apis that regulated financial institutions like coinbase can consume because if you take money out of a privacy pool and send it to coinbase they need to then turn to channelysis or somebody and say hey did the user depositing this funds from this privacy pool did they properly exclude all of the known terrorist you know Etc addresses at the time that they withdrew the money that they follow the rules and if they did great and if they uh if they didn't then you know you might ask for more evidence of who they are or whatnot and if we don't do this they will just ban all of the money coming from anything like this so that is the end game that we are working towards I also want to mention that chainway that guys who built proof of Innocence are now a molecular grantee they're developing a version one of privacy pools that will come after you know our MVP of the list out are sort of parallel tracks that will have arbitrary deposit and withdrawal amounts and from there and you know future version two we'll work on adding shielded transactions that maintain this uh recursive proof of innocence and so this is like a little bit above my pay grade but uh the idea is that you know you send eth in a shielded transaction you also send the proof of Innocence at that time and then when that person sends it on they also pass on the proof of innocence and you get this sort of like bundled proof that at the end when you withdraw you can unwind the whole thing uh and prove that at every step of the way you properly excluded all of the you know sanctioned addresses and so in closing I just want to talk about you know real world uh example of this and my friends and I you know we started around Unchained it's a NGO slash Dow to send grants and supplies to Iranians inside of Iran for Network infrastructure humanitarian Aid and pro-democracy activities which are uh legal and you know this this is what is allowed through General licenses by ofak to with the intention of allowing people like me to do this very specific thing that said uh some of the people that we are trying to help are in opposition to the regime and if they get caught they would likely be imprisoned and potentially executed and as it stands I can't use tornado cash to maintain privacy when I'm sending money because it's considered a terrorist it is on the specially designated Nationals list like you know a bunch of other Iranian terrorists uh and like the exemptions that allow me to send money into Iran uh specifically say that the money could never go towards any specially designated Nationals which means it could never go towards something uh you know tornado which is sanctioned so we have to be very careful and you know fortunately there are other privacy tools out there that we can make use of in the meantime but privacy pools itself would be the Ideal tool for this exact thing because if it was widely used and you know the government was okay with allowing people to preserve their privacy in this way we would be able to withdraw the funds and you know even if we sent it to an exchange The Exchange would just be okay with the knowing that it wasn't associated with any uh terrorists or illicit sources of funds so that's all I got uh thank you for my time for time and thank you for listening