Buterin's paper: ZK Privacy Pools for Compliance.

Shri

Ethereum co-founder Vitalik Buterin, along with four other researchers, published a paper on September 6th titled ""Blockchain Privacy and Regulatory Compliance: Towards a Practical Equilibrium,"" detailing a new technology called ""Privacy Pools.""

At the time of this paper's release, various governments and regulatory authorities worldwide have been intensifying efforts to combat money laundering by criminal groups using mixing protocols. The U.S. Department of the Treasury had previously sanctioned the mixing protocol Tornado Cash in August of the previous year. Last month, Tornado Cash co-founders Roman Storm and Roman Semenov faced criminal charges related to money laundering conspiracy and operating an unlicensed money transmission business.

In the paper, Vitalik Buterin mentioned that while Tornado Cash provides a viable solution to privacy issues, it struggles to distinguish and avoid its association with illicit activities on the network. However, the ""Privacy Pools"" technology, which utilizes zero-knowledge proofs, theoretically offers a partial solution to this problem. The core idea of this proposal is to allow users to publish zero-knowledge proofs demonstrating the source (or lack thereof) of their funds from known (or unknown) legal sources without revealing their entire transaction history. This is achieved by proving membership in custom correlation sets that satisfy certain characteristics required by regulations or societal consensus.

The Coindesk report indicates that Privacy Pools technology can provide users with privacy regarding transaction data while also segregating transaction data from any criminal activity. By aggregating legitimate transactions, users can prove that their transactions originate from deposits obtained through legitimate means. The research paper suggests that all users with ""clean"" assets have a strong incentive and capability to prove themselves as members of the ""clean"" group. On the other hand, malicious actors would be unable to provide such proof.

As more regulatory agencies start cracking down on criminal activities on blockchain networks, Vitalik Buterin believes that this technological innovation could be compatible with regulations. In many cases, privacy and compliance are seen as incompatible, but the paper argues that if privacy-enhancing protocols allow users to prove certain characteristics about the source of their funds, the situation may not be as incompatible as previously thought.

Ritu13

Regulation certainly cannot be abolished due to privacy concerns.