Ethereum co-founder Vitalik Buterin co-authored a study on Privacy Pools, a regulatory-compliant privacy protocol that could provide an alternative to Tornado Cash.
Developer Amin Soleimani, Chainalysis researcher Jacob Illum, and scientists Matthias Nadler and Fabian Shar also contributed to the paper.
The main goal of the project is to create a “separating equilibrium”. This term refers to a mechanism for filtering out criminal-related funds and finding a balance between privacy and regulatory requirements.
Privacy Pools uses Zero Knowledge Proofs (ZKP).
“The main idea behind the proposal is the ability to publish ZRPs. The latter will confirm that the funds do not come from known illegal sources, without publicly disclosing the entire transaction schedule,” says in the abstract to the article.
Privacy and regulation can coexist, according to the authors.
The researchers called Tornado Cash a useful privacy tool, but acknowledged its susceptibility to abuse by illicit actors.
In August 2022, OFAC added to the sanctions list the Tornado Cash website, with the help of which, according to the agency, the attackers laundered more than $7 billion worth of cryptocurrency. Over $455 million of them are associated with the activities of the North Korean hacker group Lazarus Group.
On August 12, Dutch authorities arrested the developer Alexey Pertsev on suspicion of involvement in money laundering and concealment of criminal financial flows. He denied all accusations against him.
In April 2023, the court changed the preventive measure for Pertsev to house arrest.
Recall that at the beginning of the year, Vitalik Buterin called privacy “the biggest remaining problem” of Ethereum and proposed a solution to it.
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