Last Updated on September 7, 2023 by Bitfinsider
With core developer Ameen Soleimani, researcher Jacob Illum from analytics firm Chainalysis, and academics Matthias Nadler and Fabian Schar, Ethereum co-founder Vitalik Buterin co-authored a research paper focused on a privacy protocol dubbed Privacy Pools. They argue that financial privacy and regulation may coexist in what could be a viable alternative to the disastrous Tornado Cash.
The new platform is described by the authors as “a novel smart contract-based privacy-enhancing protocol” meant to improve transactional privacy on blockchains. Privacy Pools intends to employ zero-knowledge proofs to determine whether user funds came from legal sources without disclosing the entire transaction history.
The project’s major purpose is to achieve what the authors refer to as a “separating equilibrium.” Simply defined, the system seeks to screen out monies associated with criminal activity while attempting to strike a compromise between privacy and regulatory needs.
“The core idea of the proposal is to allow users to publish a zero-knowledge proof, demonstrating that their funds (do not) originate from known (un-)lawful sources, without publicly revealing their entire transaction graph,” according to the abstract.
According to the authors, financial privacy and regulation can coexist. They identified Tornado Cash as a good privacy tool, but warned that it may be abused by criminals.
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