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Ethereum(<a href="https://crypto.news/price/ethereum/" rel="noopener noreferrer nofollow">ETH</a>) co-founder Vitalik Buterin; core developer Ameen Soleimani; Jacob Illum of Chainalysis; and scholars Matthias Nadler and Fabian Schar have co-authored a research paper on a novel privacy protocol dubbed “Privacy Pools.”
The paper <a href="https://papers.ssrn.com/sol3/papers.cfm?abstract_id=4563364" target="_blank" rel="noopener noreferrer nofollow">presents</a> a framework, positioning it as a potential successor to Tornado Cash, a privacy-centric service that recently came under regulatory scrutiny.
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 1/ New privacy paper with <a href="https://twitter.com/VitalikButerin?ref_src=twsrc%5Etfw" target="_blank" rel="noopener noreferrer nofollow">@VitalikButerin</a>, Jacob Illum (<a href="https://twitter.com/chainalysis?ref_src=twsrc%5Etfw" target="_blank" rel="noopener noreferrer nofollow">@chainalysis</a>), <a href="https://twitter.com/mat_nadler?ref_src=twsrc%5Etfw" target="_blank" rel="noopener noreferrer nofollow">@mat_nadler</a>, <a href="https://twitter.com/fschaer?ref_src=twsrc%5Etfw" target="_blank" rel="noopener noreferrer nofollow">@fschaer</a>!<a href="https://t.co/ovH1iYXXY6" target="_blank" rel="noopener noreferrer nofollow">https://t.co/ovH1iYXXY6</a> We explored new compliance opportunities made possible by <a href="https://t.co/Nt4b2Tgx1D" target="_blank" rel="noopener noreferrer nofollow">https://t.co/Nt4b2Tgx1D</a>, where users can provably dissociate from illicit funds. story below 🧵👇 <a href="https://t.co/Tq0zYfbwlL" target="_blank" rel="noopener noreferrer nofollow">pic.twitter.com/Tq0zYfbwlL</a>— Ameen Soleimani (@ameensol) <a href="https://twitter.com/ameensol/status/1699424914229321966?ref_src=twsrc%5Etfw" target="_blank" rel="noopener noreferrer nofollow">September 6, 2023</a>
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Privacy Pools is a “smart contract-based privacy-enhancing protocol” designed to balance financial privacy and regulatory compliance.
Using advanced cryptographic techniques like <a href="https://crypto.news/learn/zero-knowledge-proofs-explained-proving-you-know-a-secret-without-sharing-it/" rel="noopener noreferrer nofollow">zero-knowledge proofs</a>, the protocol verifies the legitimacy of user funds without revealing their complete transaction history.
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 The crux of Privacy Pools rests on establishing a “separating equilibrium”—a term coined by the authors to describe a system that filters out illicit funds while maintaining compliance with regulatory standards.
It enables private and legal financial transactions, which has been a difficult task in the blockchain field. Simply put, the protocol lets users prove the legality of their funds without revealing their entire financial transaction history.
The authors also provided a contextual backdrop by mentioning <a href="https://crypto.news/tornado-cash-case-crypto-anonymity-vs-regulation/" rel="noopener noreferrer nofollow">Tornado Cash</a>, a previous player in the blockchain privacy arena.
Although useful for privacy-oriented transactions, Tornado Cash became embroiled in a legal debacle for allegedly facilitating transactions connected to the North Korea-affiliated hacking group, Lazarus.
As of August 2022, it had been <a href="https://crypto.news/u-s-treasury-bans-tornado-cash-citing-links-to-lazarus-hacking-group/" rel="noopener noreferrer nofollow">blacklisted</a> by the U.S. Treasury Department’s Office of Foreign Assets Control (OFAC), highlighting the need for a more balanced approach to privacy and regulation.
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The introduction of Privacy Pools aims to transform blockchain-based financial transactions.
The authors suggest that combining privacy and regulation could be advantageous for crypto’s long-term sustainability.
If Privacy Pools work well, they might provide a framework for financial privacy that also complies with regulations.
Read more: <a href="https://crypto.news/vitalik-buterin-throws-shade-at-xrp-centralization/" rel="noopener noreferrer nofollow"> Vitalik Buterin throws shade at XRP centralization </a>

Tornado Cash alternative detailed in paper co-authored by Vitalik Buterin

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Other articles published on Sep 6, 2023

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