Vitalik Buterin Pushes for Privacy Pools

A research paper co-authored by Ethereum co-founder explores a privacy-preserving blockchain protocol that complies with global regulations.

Sep 7, 2023 - 18:05
Sep 15, 2023 - 14:49
Vitalik Buterin Pushes for Privacy Pools
Reading time - 2 min

A research paper co-authored by the Ethereum co-founder explores a privacy-preserving blockchain protocol that complies with global regulations.

Co-authored by Buterin and other notable figures like Ameen Soleimani, an early contributor to Tornado Cash, and Jacob Illum from Chainalysis, introduces the concept of "Privacy Pools". This protocol, a derivative of Tornado Cash, is designed to enhance its predecessor by integrating regulatory compliance.

Privacy Pools function similarly to Tornado Cash, mixing multiple user transactions to mask their true origins. However, a distinguishing feature is the option for users to generate a zero-knowledge proof when withdrawing funds. This proof verifies that the user isn't using a criminal blockchain address, all while preserving their identity.

Privacy Pools aim to conceal transaction histories, ensuring user privacy. Unlike Tornado Cash, which has faced US sanctions due to its association with illicit transfers, Privacy Pools offers a more transparent approach. Users can provide details on withdrawals using membership and exclusion proofs. These proofs share specific transaction details, ensuring regulatory compliance.

Ameen Soleimani highlighted the protocol's features, stating:

"With Privacy Pools, users can publish zero-knowledge proofs that their withdrawal originated from an 'association set' that excludes known illicit deposits."

The paper further elaborates on the cryptography of "nullifiers" that can hide coin transfers. It mentions that Zero-Knowledge Proof (ZK-SNARK) contains inputs to validate transactions by revealing the nullifiers, allowing users to maintain financial privacy while proving their funds' origin.

The paper's central theme is that privacy and financial regulation can coexist harmoniously. Users should be able to maintain their financial privacy while also proving specific transaction details, such as ensuring their funds aren't linked to illegal activities.

The authors emphasize the importance of dialogue among various stakeholders, including academics, policymakers, and regulators. The goal is to develop a privacy-enhancing infrastructure that aligns with regulatory frameworks.

The proposed "separating equilibrium" concept suggests that honest users should be able to demonstrate their compliance with regulatory requirements. Conversely, dishonest users would find it challenging to provide such proof.

Tornado Cash, a coin mixer, came under the US government's scrutiny over allegations of facilitating transactions for the North Korea-linked hacking group, Lazarus. The platform has been associated with several illicit transfers, including aiding North Korean hackers in stealing and withdrawing vast sums.

Recently, the founders of Tornado Cash were arrested and are currently pleading not guilty to the charges brought against them.

However, Privacy Pools aim to address the flaws seen in Tornado Cash. By being publicly published and open-source, it offers a more transparent and compliant alternative.

Philip Bohmer Philip is a seasoned journalist that brings clarity to the complex world of cryptocurrencies through his articulate and insightful articles. His passion for blockchain technology fuels his writing, making him a trusted voice in the rapidly evolving digital currency landscape.