A groundbreaking project for anonymizing Ethereum transactions called Privacy Pools has generated quite a buzz, thanks to a cryptic teaser by ETH visionary and co-founder Vitalik Buterin who first espoused the idea back in 2022. At the time, the concept failed to garner any interest; it was only when Buterin authored an academic discourse on the subject a few weeks ago that it began gaining substantial traction across social media channels.
The project has now been championed by Ameen Soleimani, a highly regarded developer and former contributor to the acclaimed Tornado Cash. Soleimani has taken the initiative to reconfigure the widely used open-source solution for anonymizing Ethereum transactions while adhering to the principles of regulatory compliance. He contends that “Privacy Pools” addresses a critical flaw in Tornado Cash and hopes that this novel Ethereum-based mixer will prompt US regulators to reconsider their stance on privacy mixers. The project’s code was made available on GitHub on March 5th, marking a significant step forward.
The notion of amalgamating “blockchain privacy” with “regulatory compliance” may initially appear far-fetched. However, the Ethereum founder elucidated in a comprehensive paper how Privacy Pools empower users to prove the legality of their crypto withdrawals without divulging their complete transaction histories. Users can generate zero-knowledge proofs that establish their withdrawals are associated with approved “sets” of prior deposits.
In the paper, Buterin and his team shed light on two primary strategies for constructing association sets. The first approach, known as the “inclusion” method, involves considering only low-risk deposits based on specific criteria, such as transaction screening tools or membership in trusted communities.
Conversely, the “exclusion” method entails omitting known suspicious deposits while preserving all other transactions as potential sources. The paper provides illustrative examples of how both methodologies allow legitimate users to demonstrate their non-association with illicit funds.
Ethereum Experts Raise Centralization Issue
While they express support for the Privacy Pools concept, the Ethereum researchers raise concerns about the potential involvement of centralized entities in overseeing access. They argued that such an arrangement could give rise to governance issues and the concentration of data, potentially leading to data monopolies.
The Privacy Pools paper signifies Buterin’s ongoing efforts to foster productive collaboration between the cryptocurrency industry and regulatory bodies. With thoughtful design and implementation, he stated that blockchains can align with policy objectives without compromising the fundamental tenets of user privacy. This project stands as a testament to the dynamic evolution of privacy solutions within the crypto landscape.