Ethereum Co-Founder Vitalik Buterin Explores Privacy Pool Systems in Research Paper
In a recent research paper, Ethereum co-founder Vitalik Buterin delves into privacy pool systems as a means to enhance privacy in financial transactions. By utilizing zero-knowledge-proof technology, these systems allow users to prove their dissociation from illicit funds.
Tornado Cash’s Popularity and Legal Issues
The paper begins by discussing Tornado Cash, a widely-used privacy-enhancing protocol that enables users to deposit and withdraw cryptocurrencies without creating a traceable link between the two addresses. However, the founders of Tornado Cash are currently facing criminal charges, highlighting the protocol’s extensive use by bad actors.
New Approaches to Achieve Financial Compliance on-Chain
The research paper proposes an extension of Tornado Cash’s approach, which would allow users to publicly prove the source of their funds on the blockchain. This can be achieved through membership proofs and exclusion proofs, providing a balance between honest and dishonest protocol users and potentially enabling financial compliance on-chain in the future.
The Concept of Association Sets in Privacy Pools
The paper introduces the concept of association sets, which users can utilize to exclude themselves from anonymity sets that include addresses associated with illegal activities. By using zero-knowledge proofs, users can prove their membership in a more restrictive association set, ensuring privacy while complying with regulations.
An Illustration of Association Sets
To illustrate the concept, the authors provide an example involving five users, including one bad actor. Users can choose which association set to be a part of when making withdrawals, incentivizing them to include more users to protect their privacy. However, to avoid suspicion, users must exclude the bad actor from their association set.
Zero-Knowledge Proofs for Privacy and Regulatory Compliance
The paper also explores other use cases of zero-knowledge proofs, such as demonstrating that funds are not tied to illicit sources or proving the origin of funds without revealing further information. It suggests that privacy and regulatory compliance can coexist if privacy-enhancing protocols enable users to prove certain properties regarding the origin of their funds.
Hot Take: Zero-Knowledge Solutions Set to Grow as Privacy Becomes a Priority
As global regulations evolve and individuals seek to protect their privacy, protocols utilizing zero-knowledge solutions, especially on the Ethereum network, are expected to experience significant growth in the coming months. These solutions offer a way to achieve privacy while also meeting regulatory requirements.
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