Vitalik Buterin, co-founder of Ethereum (ETH), has joined forces with industry experts to pen a research paper focusing on a new privacy protocol named “Privacy Pools.”
The document delves into potential improvements over existing privacy-centric platforms like Tornado Cash. At its core, the paper champions the idea that financial privacy can coexist harmoniously with regulation, as outlined in the abstract.
Several notable figures from the crypto realm have also contributed to the research, including Ameen Soleimani, a core developer; Jacob Illum from Chainalysis; and scholars Matthias Nadler and Fabian Schar.
“Privacy Pools” is characterized as a “smart contract-based privacy-enhancing protocol.” Leveraging the power of zero-knowledge proofs, it verifies the authenticity of user funds without the need to display their entire transaction trail.
The ultimate goal is crafting a “separating equilibrium.” This would sift out funds tied to illicit activities, striking a delicate yet essential balance between upholding privacy and meeting regulatory standards.
Privacy Pools to Increase Privacy While Filtering Out Unlawful Transactions
The suggested method enables users to present zero-knowledge proofs that showcase the source of their funds without revealing the entirety of their transaction history. This provides a promising mechanism for confirming the legitimacy of assets while maintaining transactional confidentiality.
Central to the proposal is the ability for users to issue a zero-knowledge proof, verifying that their funds either stem from or are not associated with recognized lawful or unlawful sources, all without publicly laying out their complete transaction map,” the paper elaborated.
While the authors recognize the value of platforms like Tornado Cash as privacy instruments, they also underscore the potential misuse of such tools by malicious entities.
In a testament to this, Tornado Cash encountered legal hurdles the previous year, facing allegations of aiding transactions for the North Korea-affiliated hacking ensemble, Lazarus.
Following these concerns, the US Treasury Department’s Office of Foreign Assets Control (OFAC) took decisive action against Tornado Cash, placing it on a blacklist in August 2022 due to purported ties with illicit undertakings.
With the conceptualization and furthering of Privacy Pools, Buterin, alongside his fellow authors, aspire to tackle the issues surfaced by the legal entanglements of Tornado Cash. Their goal is to champion a privacy-centric protocol that also remains in harmony with regulatory stipulations.
The authors poignantly note in their paper: “Often, there’s a perception that privacy and regulatory compliance are at odds.”
Yet, they argue, “Such a dichotomy might not always hold true, especially if the privacy-enhancing protocol in question allows its users to demonstrably ascertain specific attributes about the source of their assets.”
Vitalik Buterin, the chief architect behind Ethereum, has recently acknowledged the centralization of nodes as one of the platform’s most pressing challenges. Notably, a substantial portion of the 5,901 active Ethereum full nodes are hosted on centralized services, with Amazon Web Services (AWS) being a prime example.
Buterin envisions a future where fully authenticated Ethereum nodes could practically operate on everyday devices, such as smartphones.
He emphasized that addressing the centralization concern surrounding full nodes is integral to steering Ethereum towards a more decentralized trajectory.
