thecoinrepublic.com
- 1 A group of experts, including Vitalik Buterin, put forth a proposal to enhance blockchain privacy.
- 2 The proposal concentrates on making the privacy compliant with the regulations rather than a regulatory concern.
Privacy remains the core feature of blockchain and decentralized finance in general. Ethereum co-founder Vitalik Buterin and several other industry experts prepared a paper that talks about blockchain privacy. The authors of this paper include academics and researchers including Buterin.
In the last several months, it has been seen that regulatory compliances and blockchain privacy are crossing pathways. However, the technology experts believe that both can move forward in tandem. The protocol dubbed ‘Privacy Pools,’ introduced in a research paper released on September 6, notes down the procedure to achieve the goal.
The paper titled “Blockchain Privacy and Regulatory Compliance: Towards a Practical Equilibrium” presents the notion of a “smart contract-based privacy-enhancing protocol.” The proposed protocol is said to separate transactions involving criminal activities from the “good” ones.
The friction between regulatory bodies and the blockchain and crypto industry on the issue of privacy resulted in the creation of this paper. Government agencies were cracking down on groups conducting illicit activities but the privacy protocols, such as crypto mixers, fell victim to the clampdown given the suspicion of laundering the illegal funds.
Vitalik Buterin’s Proposed Protocol To Resolve Privacy Issues
Buterin considered Tornado Cash as an efficient tool to resolve privacy issues. However, the protocol was unsuccessful in keeping itself separate from the illicit activities going on the network.
The United States Department of Treasury’s Office of Foreign Assets Control sanctioned Tornado Cash, a prominent cryptocurrency mixer protocol, during a similar crackdown operation. The mixer was alleged to be used for money laundering activities by the notorious and infamous hacking group of North Korea, “Lazarus Group”.
“The paper should be seen as a humble contribution towards a potential future, in which financial privacy and regulation can co-exist,” the paper noted.
Along with Vitalik Buterin, the paper was co-authored by the co-founder of Moloch DAO Ameen Soleimani, chief scientist at Chainalysis Jacob Illum, University of Basel’s Matthias Nadler, and Fabian Schar.
Funneling Honest and Dishonest Transactions Differently
Privacy Pools would use the existing ‘zero-knowledge technology.’ Theoretically, the proposed protocol could bring solutions to the table by keeping the crucial sensitive information of transactions hidden while showcasing only the required detail. This will help to differentiate the transaction from an honest user with one from criminal activity.
With the transaction details visible, an honest user would be able to prove their activities to be in accordance with the regulatory compliances. On the other hand, users with the intention of using the protocol to launder illegally accumulated crypto assets might not be able to get through in the absence of proof.
Following the proposal, blockchain privacy is likely to become part of the mainstream debate. It will also act as a guiding path to suggest a solution-driven approach proving that the privacy protocol can comply with the regulatory requirements.