There has been a period of privacy coins in the crypto world. However, the use of the proceeds of crime to obscure this tide reversed this trend. Some countries even banned Tornado Cash, which stands out among them. Ethereum co-founder Vitalik Buterin wrote a joint article on the regulation-friendly, Tornado Cash alternative. In this direction, Buterin drew attention to a privacy protocol called Privacy Pools.
Ethereum inventor wrote a joint article on Privacy Pools
The protocol aims to verify the legality of user funds without revealing the full transaction history. It uses zero-knowledge proof for this. Ethereum co-founder Vitalik Buterin, along with core developer Ameen Soleimani, researcher Jacob Illum of analytics firm Chainalysis, and academics Matthias Nadler and Fabian Schar, wrote a research paper focusing on a privacy protocol called Privacy Pools. The article suggests that this platform could be a potential alternative to the troublesome Tornado Cash. It also tries to show that it is possible for financial privacy to coexist with regulation.
The authors, including the Ethereum inventor, describe the new platform as a “new smart contract-based privacy-enhancing protocol” designed to increase transaction privacy on blockchains. Privacy Pools uses zero-knowledge proofs. In this way, the user does not disclose the full transaction history to determine whether their funds are coming from legitimate sources.
Financial privacy and regulation: A dual approach
The primary goal of the project is to create what the authors describe as the “dividing balance”. Simply put, the system tries to strike a balance between privacy and legal requirements. Meanwhile, it aims to filter funds linked to criminal activities. The article, co-authored by Ethereum co-founder Vitalik Buterin, draws attention to the following:
The main idea of the proposal is to allow users to post zero-knowledge proof that their funds are (not) originated from known (illegal) sources, without making all trading charts public.
The authors suggest that financial privacy and regulation can coexist. As you follow on Kriptokoin.com, they initially cited Tornado Cash as a useful privacy tool. However, they also admitted that it was prone to abuse by later illegal actors, including the Ethereum inventor. Tornado Cash faced legal challenges last year over allegations that it facilitated transactions for the North Korean-linked hacking group Lazarus. In August 2022, Tornado Cash was blacklisted by the US Treasury Department’s Office of Foreign Assets Control for alleged involvement in illegal activities.
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