On September 6, Ethereum founder Vitalik Buterin and a group of five academics and researchers released a pioneering article addressing crucial issues of privacy and compliance in the blockchain arena. The paper introduces “Privacy Pools,” a mechanism meant to address the difficulty of establishing that users did not receive donations from specific organizations without revealing the precise sources of financing.
Privacy Pools is based on zero-knowledge proofs, a cryptographic technique that allows one side to validate the possession of specified information without divulging its content. This idea has the potential to significantly improve privacy while conforming to regulatory standards in the blockchain business.
The article highlights the significance of balancing financial privacy with legal requirements, proposing itself as a “humble contribution towards a potential future” in which these two seemingly conflicting forces coexist. Ameen Soleimani, co-founder of Moloch DAO, Matthias Nadler and Fabian Schar from the University of Basel, and Jacob Illum, Chief Scientist at Chainalysis, are among the paper’s co-authors.
Privacy Pools could develop as a legal alternative to Tornado Cash, a cryptocurrency mixer that has drawn more investigation from law officials. The US Department of Justice accused two Tornado Cash developers of money laundering and sanctions violations just last month. At the same time, the Office of Foreign Assets Control (OFAC) had already listed Tornado Cash on its sanctions list.
The paper highlights a key issue with blockchain transactions: their inherent public nature, jeopardizing user privacy. For example, a restaurant that accepts cryptocurrency payments may obtain access to a customer’s full transaction history, jeopardizing their privacy.
The authors hope to collaborate with various stakeholders to enhance the Privacy Pools system further. They recognize the importance of collaboration among practitioners, scholars from diverse disciplines, policymakers, and regulators in developing and adopting their ideas. Their ultimate goal is to build privacy-enhancing infrastructure that can be implemented efficiently inside a regulated environment.
Introducing Privacy Pools is an important step in resolving the complicated interplay between privacy and compliance in the blockchain sector, providing optimism for a future in which both can coexist effortlessly.