Tornado Cash

Tornado

<p>The Tornado Cash developer Alexey Pertsev, arrested in the Netherlands, is <a href="https://www.coindesk.com/policy/2023/02/15/tornado-cash-developer-to-stay-jailed-as-dutch-trial-continues/?ref=blockhead.co" rel="noopener noreferrer nofollow">still in jail</a>. And people from all over the cryptocurrency space have long characterized this as a "<a href="https://decrypt.co/107320/welcome-the-war-code-crypto-twitter-reacts-arrest-alleged-tornado-cash-dev?ref=blockhead.co" rel="noopener noreferrer nofollow">war on code</a>" where someone is getting in trouble for writing and publishing open source software.</p>
<h2 id="header-0">What the Prosecutor Said</h2>
<p>First, the prosecutor asserts that a group of three people, including Pertsev, actively managed the day-to-day running of Tornado since 2019. As we will see in the blog they admitted this publicly years ago.</p>
<blockquote>
 In this, Pertsev, S. and S. since October 2019 and actually discuss the most important decisions related have on the day-to-day running of Tornado Cash, the decision making around Tornado Cash and its further development.
</blockquote>
<p>Next they assert that this group worked on ancillary tools that made Tornado work in practice. We will discuss relayers below but, again, they've publicly admitted working on software that is necessary to get anonymity out of the system.</p>
<blockquote>
 The three of them set out the lines. Don't come alone a decentralized mixing protocol online, but a User Interface developed, there will be a relay system, a Dune dashboard, etc. The suspect was working on this until the day of his arrest. This is important because it shows that the suspect had an influence on the operation of Tornado Cash, he helped determine whether and how customers use the mixing protocol could approach (the User Interface) and in what way customers via the relayer system could absorb cryptos again.
</blockquote>
<p>In addition the prosecutor asserts that DAO control via the TORN token is a bit of a sham. Again, we will see from the blog that they've admitted to designing the governance system and ran the initial airdrop of tokens. That feels a lot like control, at least for a while. There are also off-chain governance processes we will see below.</p>
<blockquote>
 Outwardly, the protocol may have been pretended to be "governed" by the Community (a so-called DAO). In practice, Pertsev, S. and S. great influence on the content of the proposals. It also shows investigation that the suspect and his companions influenced the decision-making: not only did they vote in a number of cases (this is currently still being researched), but also send to people who they whether or not they want to have positions where people vote. And apparently they determine when the vote takes place. Coupled with the fact that they own by far the most TORN tokens (those necessary to vote) the defendant, S. and S., can always anyone drown out. That means that they actually had control over what was or was was not going to happen within the 'community' Tornado Cash.
</blockquote>
<p>Finally the prosecutor claims that these folks, in practice, ran an operation to support Tornado with developers. And they managed those developers as at any other business.</p>
<blockquote>
 In addition, the triumvirate assigns various tasks to others, at employees, and Pertsev also gets angry when poor work is done.
</blockquote>
<h2 id="header-1">The Blog</h2>
<p>This <a href="https://tornado-cash.medium.com/tornado-cash-is-finally-trustless-a6e119c1d1c2" rel="noopener noreferrer nofollow">post</a> admits that, prior to mid-2020, the team in question ran the protocol:</p>
<blockquote>
 from now on, all tornado.cash contracts are immutable and unstoppable... The tricky part is that the tornado.cash team is also not able to protect the users from bugs anymore as we did before.
</blockquote>
<p>So, at best, the claims of only writing software can only apply after the "Trusted Setup Ceremony" <a href="https://tornado-cash.medium.com/the-biggest-trusted-setup-ceremony-in-the-world-3c6ab9c8fffa#ea52" rel="noopener noreferrer nofollow">they designed</a>. In December 2020 they proposed a governance mechanism <a href="https://tornado-cash.medium.com/tornado-cash-governance-proposal-a55c5c7d0703" rel="noopener noreferrer nofollow">here</a>. And this sort of gives away the game:</p>
<blockquote>
 You might wonder how any of this is possible at all — isn’t Tornado.Cash immutable? It is! The Tornado.Cash smart contracts cannot be changed or updated. They are decentralized and immutable. But for Tornado.Cash to enable mining... a proxy stands in front of the old Tornado.Cash ... someone needs to run a script called the root-updater. So long as someone out there does this, the system works smoothly and trustlessly.
</blockquote>
<p>Also they ran an airdrop and there was no pretense that was decentralized at all. The blog contains a link to <a href="https://github.com/tornadocash/airdrop/blob/master/airdrop.csv" rel="noopener noreferrer nofollow">github</a> with the airdrop details. That is not writing code – it is surely economic activity.</p>
<p>And it goes on from there. &nbsp;The same team talks about bringing Tornado to <a href="https://tornado-cash.medium.com/tornado-cash-bsc-deployment-proposal-96dfc06055f8" rel="noopener noreferrer nofollow">BSC</a>, <a href="https://tornado-cash.medium.com/tornado-cash-deployment-proposal-on-polygon-f6d41b980f52" rel="noopener noreferrer nofollow">Polygon</a>, <a href="https://tornado-cash.medium.com/tornado-cash-deployment-proposal-on-xdai-216903df898c" rel="noopener noreferrer nofollow">xDAI</a>, <a href="https://tornado-cash.medium.com/tornado-cash-deployment-proposal-on-avalanche-ee5d69f9e4b0" rel="noopener noreferrer nofollow">Avalanche</a>, <a href="https://tornado-cash.medium.com/tornado-cash-deployment-proposal-on-arbitrum-fb02e508fe74" rel="noopener noreferrer nofollow">Arbitrum</a> and <a href="https://tornado-cash.medium.com/tornado-cash-has-been-deployed-on-optimism-68351443bbc" rel="noopener noreferrer nofollow">Optimism</a>. That is classic bizdev work not programming.</p>
<h2 id="header-2">Relayers</h2>
<p>And then we come to the issue of relayers. To quote another <a href="https://tornado-cash.medium.com/tornado-cash-new-decentralized-relayers-network-19ca7eea5d86" rel="noopener noreferrer nofollow">blog post</a>:</p>
<blockquote>
 Relayers form an essential &amp; necessary part of the Tornado Cash ecosystem. Their use guarantees privacy as they solve the infamous “fee payment dilemma” : how to pay gas fees for token withdrawals from a pool while maintaining anonymity? Therefore, relayers act as a third parties and take care of the whole withdrawal. They pay for gas fees by deducing them directly from the transferred amount. They also take an additional gas fee for their services.
</blockquote>
<p>Relayers sure sound like businesses! And, as they explain, businesses that are an essential part of the anonymity working properly. That post talks about setting up a "decentralized relayer network" in Mar 2022. So they acknowledge relayers were centralized businesses prior to that date.</p>
<p>The issue here is that Tornado Cash does not really work in practice. Yes the mixing is zk and the math checks out. But withdrawals require gas fees and you need to fund the withdrawal addresses properly. Back when Ethereum was proof-of-work you could have joined a mining pool via Tor and collected a small balance to pay this gas. But that is not how most people used the service and it does not work for proof-of-stake chains. These folks were operating businesses essential to the ecosystem and collected fees for doing so.</p>
<h2 id="header-3">Governance</h2>
<p>We can find an interesting summary of the governance process on the now-deleted "What's Up Tornado" blog. For <a href="https://web.archive.org/web/20220812000759/https://wutornado.medium.com/whats-up-tornado-some-digging-on-tornado-cash-decision-making-8db64014112" rel="noopener noreferrer nofollow">example</a>:</p>
<blockquote>
 However, all decisions made by the community don’t need to go through strict on-chain governance guidelines... A lot of decisions, such as the use of the Tornado.Cash Community Fund or the election of its multi-signature key holders, are made through off-chain governance... Afterwards, the made decision isn’t automatically put in place. It needs the intervention of community members or Tornado.Cash team to get coded / put in place &amp; executed. Those decisions aren’t as binding as they are when decided through on-chain governance.
</blockquote>
<p>There is no pretense here: these folks were running this as a business and it was managed off-chain.</p>
<p>You can simultaneously believe nobody should get in trouble for simply writing code and that these people were doing a lot more than just writing code. And these quotes are from their own blog posts. This is not some complex legal argument: it is just reading what they wrote.</p>
<h2 id="header-4">Espionage</h2>
<p>Some people have suggested this whole thing is somehow related to intelligence operations or similar. At a high level it is certainly possible a lot of this work was funded, or at least somewhat subsidized, by sources we do not know about. It is possible that without cash from one or more government agencies these businesses would have lost too much money and folded.</p>
<p>There is no public inforamation on this and it seems pretty likely it will stay that way whether or not any of those theories are true. But the essential fact remains that running a loss-making business is still running a business. So these theories provide zero protection as, even if Pertsev is somehow intelligence-linked, he is definitely <a href="https://en.wikipedia.org/wiki/Cover_%28intelligence_gathering%29#Non-official_cover" rel="noopener noreferrer nofollow">NOC</a> and we will not find out.</p>
<p>For reference here are the <a href="https://www.docdroid.net/ZpGl8EZ/pertsev-case-for-prosecution-nl-pdf?ref=blockhead.co" rel="noopener noreferrer nofollow">prosecutors comments</a> (in Dutch, Google translated below), here is the <a href="https://tornado-cash.medium.com/?ref=blockhead.co" rel="noopener noreferrer nofollow">Tornado Cash blog</a> and here is a related (now deleted) <a href="https://wutornado.medium.com/?ref=blockhead.co" rel="noopener noreferrer nofollow">blog</a> you can find on the Wayback Machine.</p>

Was the Tornado Cash Team Really Just Writing Code?

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