News on Ethereum never ceases to amaze

For years, Ethereum (ETH) fans have been looking forward to Ethereum 2.0, the next generation of their beloved blockchain network. However, on January 24, the Ethereum Foundation announced that Ethereum 2.0 no longer exists.

“We have removed all cases of using the terminology ‘Eth2’ on our platform.

Find out why”, said Ethereum.org . This may seem more radical than it actually is. Ethereum 2.0 is now called the “consensus layer”.

The roadmap of the project has not changed much. According to Coinmarketrate.com Ethereum will still make the transition from Proof of Work (PoW) protocol to Proof of Stake (PoS) protocol. This means that in the near future, the Ethereum network will no longer be mining using thousands of computers to process transactions. In the future, transactions will be verified using so-called validators.

The long-awaited “merger” will also take place. At the end of 2020, the Beacon Chain, the blockchain and the basis for Ethereum 2.0, was launched. The plan was to merge the Ethereum 2.0 blockchain with Ethereum 1.0 this year, which is also called a merger.

This merger will happen anyway. Ethereum 1.0 is now called the “execution level”. When the merger takes place, the execution level together with the consensus level will form a new Ethereum. Now without the number “2”.

The execution layer mainly contains smart contracts and network rules, and the consensus layer ensures that all computers comply with the rules. The consensus level will replace the current mining system with Ethereum during the merger. However, it is still unknown when this merger will take place, and whether it will happen at all.

Later, Ethereum will also introduce “sharding” – a way to divide the network into parts so that it can process more transactions.

The reason for the name change is that the team behind Ethereum wants to emphasize that this is an update, not a completely new network. Another reason is that the beacon chain was launched long before the other components of Ethereum 2.0 were completed. As a result, developers had to look for a middle ground, and priorities changed. Among developers, the term ETH 2.0 has apparently been dropped for a while.

So, there is another topic for reflection, along with recent problems with Crypto.com , and the question, should mixers be banned?

ETH stolen and recycled using TornadoCash

Recent hacking of Crypto.com has caused long-dormant discussions in the cryptocurrency world, namely those concerning mixing services. In other words, services such as TornadoCash, which allow at least partially disguise the movement of funds.

Are these criminal services or not? Do I need to fight them? What image do they create about the world of cryptocurrencies? A discussion on one of the hottest and least discussed topics in the world of cryptocurrencies. This time we are talking about a multi-million dollar theft, and since one of the most popular exchanges in the world has suffered, it may be time to discuss this openly.

Stolen ETH, and the role of TornadoCash

Faucets are alive and well and are becoming more and more technologically advanced.

Such services are not a new thing, and according to law enforcement agencies, they create huge problems with tracking in investigations. There’s probably no need to talk about it, but law enforcement agencies around the world would like to shut them down. But would this really be a desirable situation?

In fact, different mixer services in different chains work technically differently, but they have a common goal: to ensure greater confidentiality of transactions occurring in public chains. In an ideal world (especially for law enforcement agencies), every transaction is clear and traceable, and the police (or anyone else) only need to establish the identity of the owner of the target wallet. If there is a sender, then there is a recipient in the same transaction. Thus, the reconstruction of movements becomes quite simple, or at least possible. We have simplified the situation as much as possible, and this does not pretend to be a complete picture of the phenomenon.

It is in this context that mixing services come into play, which do nothing more than try to obscure the transaction. Rather, to interrupt the chain, through which it is very easy to track the recipient of certain coins or tokens, in the specific case of a hack that struck Crypto.com on the Ethereum network.

TornadoCash was used to steal ETH from customers, but then the funds were reimbursed directly Crypto.com . The founder of TornadoCash was also presented in a good light on Coindesk, but the fact remains.

Such a protocol is not controlled by third parties

And it is controlled through the DAO, which makes it impossible for third parties to interfere, by virtue of the protocol configuration itself. This is the essence of such a service, which would not make sense if it were not protected from intrusion.

With all his desire, TornadoCash cannot help the investigators. And this is also a fundamental aspect of the functioning of such a protocol. Because if the confidentiality of the transaction was at the complete disposal of the creators of the protocol, it would become completely useless. This is a bit like reasoning about cryptographic protocols that need to be protected even from the people who created them in order to have any practical functionality.

“There is little we can do to help the investigators, because the team has no control over the protocol.”

The TornadoCash team conducts research and publishes code on GitHub. All changes to the protocol are decided by the community. The protocol was designed to make it impossible to stop, since it would not make sense if a third party (including developers) had control over how it works.

A bit like Ethereum and Bitcoin, which owe their appeal to decentralization enthusiasts.

A former Drug Enforcement Administration official sees it differently. If cryptocurrency enthusiasts consider such services as the implementation of the confidentiality of financial data, then, obviously, large state investigative authorities consider services such as TornadoCash problematic.

Bill Callahan, who previously worked at the DEA and now heads the Blockchain Intelligence Group, holds exactly this opinion:

“If the mixer knows (or should have known) the recipients of funds that come from an illegal source, he should be put on trial for money laundering.”

Ominous formulations that, on the one hand, try to scare away those who engage in such services, and on the other hand, signal how problematic these services are for state investigative agencies. This line is also followed by FinCEN, who claims that mixers will be part of the legal definition of money brokers and, therefore, will have obligations with respect to KYC. But this was ignored.

Imagine that you want to ban them: but how exactly?

As is often the case in the blockchain world, of course, we may be full of desire to control what happens inside it, but we always face the same problem: how can we prevent this from happening?

Even among our readers there are those to whom such a service may seem dangerous and stimulating certain criminal actions. But what can be done to stop a service based on a smart contract that no one can block?

How TornadoCash works

Without going into unnecessary details, TornadoCash works according to a scheme that we all understand. The money is transferred to a smart contract, and then, subsequently and with a significant delay, it is withdrawn from different wallets, without the ability to link the recipient and the sender of the transfer.

This service makes it almost impossible for the police around the world to have an idea about transfers or to identify the relationship between the sender and the recipient. This is a problem for the most technologically advanced States, which have made full traceability of each transaction the cornerstone of their law enforcement activities.

It may seem that it is easy to make arguments in favor of a ban, which should be sought by any means. But what will be the consequences of total control of transactions by government agencies? The latter situation was one of the reasons for the birth of the sector itself.

So, the crypto community has something to think about today.