A Group of Academics and Researchers, Including Ethereum Founder Vitalik Buterin, Release Paper on Privacy and Compliance in Blockchain

Introduction

A group of five academics and researchers, including Ethereum founder Vitalik Buterin, released a paper on Sept. 6 looking to address key issues of privacy and compliance in the blockchain space.

Privacy Pools: A Protocol for Demonstrating Funds without Revealing Sources

The paper outlines a protocol, called Privacy Pools, which would allow its users to demonstrate that they did not receive funds from specific groups, without revealing specific sources of funding.

• The solution leverages zero-knowledge proofs, a cryptographic method which allows one party to prove that they possess certain information without revealing what that information is.

Co-Authors and Their Contribution

The paper’s co-authors are Ameen Soleimani, the co-founder of Moloch DAO, Matthias Nadler and Fabian Schar of the University of Basel, and Jacob Illum, chief scientist at Chainalysis.

Privacy Pools as a Compliant Successor to Tornado Cash

Privacy Pools could be considered a compliant successor to Tornado Cash, the crypto mixer that continues to be targeted by law enforcement.

• The U.S. Department of Justice charged two of Tornado Cash’s developers with money laundering and sanctions violations last month.
• The Office of the Foreign Asset Control (OFAC) added Tornado Cash to its sanctions list last year.

The Challenge of Blockchain Transactions and Privacy

The public nature of blockchain transactions is generally incompatible with users’ privacy.

• The paper cites the example of paying a bill at a restaurant, which would then be able to see every past and future transaction of a customer.

The Future of Privacy Pools

Looking forward, the authors hope to engage with a variety of stakeholders to develop the system further.

• “Cooperation between practitioners, academics from various fields, policymakers and regulators will be needed to extend and modify this proposal,” the paper reads.
• “The ultimate goal [is] to create privacy-enhancing infrastructure that can be used in a regulated environment.”