Ethereum’s Vitalik Buterin Co-Authors Paper on Privacy-Focused Tornado Cash Alternative
In Brief
Vitalik Buterin, the co-founder of the Ethereum blockchain, has co-authored a research paper on Privacy Pools.
The primary objective of this initiative is to address a notable drawback found in Tornado Cash.
Through Privacy Pools, users can share zero-knowledge proofs demonstrating that their withdrawal can be traced back to an “association set” free of any recognized unlawful deposits.
The company is currently coordinating privacy teams to standardize its proofs and association sets for interoperability.
Vitalik Buterin, the co-founder of the Ethereum blockchain, has co-authored a research paper on Privacy Pools.
Other co-authors include Ameen Soleimani, the core developer of Privacy Pools; Jacob Illum, the researcher from analytics firm Chainalysis; Matthias Nadler, the researcher of the University of Basel; and Fabian Schar, the researcher of Center for Innovative Finance and the University of Basel.
Privacy Pools is a privacy protocol that could serve as a viable substitute for the privacy mixer Tornado Cash. The primary objective of this initiative is to address a notable drawback found in Tornado Cash. Specifically, users of the latter were unable to conclusively disassociate themselves from potentially illegal funds unless they revealed their entire transaction history, a course of action chosen by only a small subset of users.
Zero-knowledge proofs
Through Privacy Pools, users can share zero-knowledge proofs demonstrating that their withdrawal can be traced back to an “association set” free of any recognized unlawful deposits. In essence, this concept offers users the potential to confirm adherence to regulatory standards while preserving their privacy when engaging with public blockchains.
The core concept revolves around users being able to publish zero-knowledge proofs, effectively demonstrating the legitimacy of their funds. This process ensures that the funds do not originate from sources associated with illegal activities.
“In theory, this allows users to prove regulatory compliance and still maintain privacy while using public blockchains,” writes Ameen Soleimani in an X (former Twitter) post.
In essence, Privacy Pools aims to strike a delicate balance between safeguarding user privacy and adhering to the demands of financial regulations.
As shared by the co-authors, the next phase in the development of Privacy Pools, aside from maintaining ongoing discussions with regulators, involves automating the process of generating the “association set.”
The company is currently coordinating privacy teams to standardize its proofs and association sets for interoperability.
Tornado Cash
It’s worth noting that the authors of the paper acknowledge the value of privacy tools like Tornado Cash but emphasize the susceptibility of such platforms to misuse by illicit actors.
Vitalik Buterin himself used Tornado Cash to donate to Ukraine in August 2022. Such an action is an example of a need for financial privacy, where users might not want to disclose full details of their actions to the government.
The same month, the U.S. Treasury sanctioned the service, claiming that it did not implement adequate measures to prevent frequent money laundering for malicious cyber actors.
In August this year, Roman Storm and Roman Semenov, developers of Tornado Cash, were charged with money laundering and sanctions violations.
The allegations encompass the awareness that Tornado Cash had been utilized for laundering gains originating from cybercrimes, with specific mention of hacks on platforms like KuCoin, BitMart, and Axie Infinity.
The cryptocurrency mixer also allegedly enabled the laundering of more than $1 billion, with considerable sums flowing to groups like North Korea’s hacker organization Lazarus Group.
So, Privacy Pools might be the solution to the age-old dilemma of reconciling financial privacy with regulatory requirements.
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About The Author
Valeria is a reporter for Metaverse Post. She focuses on fundraises, AI, metaverse, digital fashion, NFTs, and everything web3-related. Valeria has a Master’s degree in Public Communications and is getting her second Major in International Business Management. She dedicates her free time to photography and fashion styling. At the age of 13, Valeria created her first fashion-focused blog, which developed her passion for journalism and style. She is based in northern Italy and often works remotely from different European cities. You can contact her at valerygoncharenko@mpost.io
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Valeria is a reporter for Metaverse Post. She focuses on fundraises, AI, metaverse, digital fashion, NFTs, and everything web3-related. Valeria has a Master’s degree in Public Communications and is getting her second Major in International Business Management. She dedicates her free time to photography and fashion styling. At the age of 13, Valeria created her first fashion-focused blog, which developed her passion for journalism and style. She is based in northern Italy and often works remotely from different European cities. You can contact her at valerygoncharenko@mpost.io
