Ethereum co-founder Vitalik Buterin has collaborated with key developer Ameen Soleimani, Chainalysis researcher Jacob Illum, and academic experts Fabian Schar and Matthias Nadler to co-author a pioneering research document.
In a strategy aimed at enhancing privacy on the Ethereum blockchain while managing regulatory examination, the paper presents “Privacy Pools,” intended to act as a compliant substitute for the currently blacklisted Tornado Cash.
The US Department of the Treasury’s blacklisting of Tornado Cash, in partnership with the Department of Justice (DOJ) and the IRS, reverberated through the cryptocurrency sector. Its developers, Roman Storm and Roman Semenov, faced accusations of laundering upwards of $1 billion for the infamous Lazarus Group, a hacking organization linked to North Korea.
In light of these accusations, Vitalik Buterin and his team are actively developing a new protocol regarded as “regulation-friendly.”
1/ New privacy paper with @VitalikButerin, Jacob Illum (@chainalysis), @mat_nadler, @fschaer!https://t.co/ovH1iYXXY6
We explored new compliance opportunities made possible by https://t.co/Nt4b2Tgx1D, where users can provably dissociate from illicit funds.
story below 🧵👇 pic.twitter.com/Tq0zYfbwlL
— Ameen Soleimani (@ameensol) September 6, 2023
Vitalik Buterin And Privacy Pools: An Innovative Strategy
Privacy Pools signify an innovative smart contract-based privacy-boosting protocol that aims to replicate and enhance the fundamental functionalities of Tornado Cash. Similar to its predecessor, Privacy Pools will improve transactional confidentiality on blockchains, ensuring that comprehensive transaction records remain hidden.
ETHUSD trading at $1,631 on the daily chart: TradingView.com
Nevertheless, the groundbreaking feature lies in Privacy Pools’ capability to utilize zero-knowledge proofs to track the origin of funds without disclosing particular transaction specifics. Essentially, it can ascertain whether funds derive from illicit sources without infringing on user confidentiality.
The abstract of the research document succinctly conveys the primary notion: “The fundamental concept of the proposal is to enable users to publish a zero-knowledge proof, attesting that their funds (do not) come from known (un-)lawful origins, without publicly disclosing their complete transaction graph.”
A Reply To Previous Controversies
Tornado Cash’s decline initiated when it faced legal hurdles concerning its alleged facilitation of transactions for the Lazarus Group, which is infamous for its cyber intrusions and financial crime activities. In August 2022, the US Treasury Department’s Office of Foreign Assets Control officially categorized Tornado Cash as blacklisted due to its supposed involvement in unlawful activities.
With Privacy Pools, Vitalik Buterin and his collaborators aspire not only to reinstate privacy in Ethereum transactions but also to guarantee that users can achieve this while conforming to regulatory standards. This cooperative initiative marks a vital advancement in harmonizing the principles of blockchain privacy with the legal expectations of regulatory bodies, paving the pathway for a more inclusive and secure cryptocurrency environment.
In the rapidly shifting sphere of blockchain technology, Privacy Pools may exemplify the community’s dedication to innovation, compliance, and confidentiality while tackling the challenges posed by illicit actors.
(This site’s content should not be interpreted as investment counsel. Investing entails risks. When you invest, your capital is subject to those risks).
Featured image from Fusion Security
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