Ethereum’s Vitalik Buterin, along with researchers and privacy advocates, published a paper on September 6, 2023, titled “Blockchain Privacy and Regulatory Compliance: Towards a Practical Equilibrium.” The paper introduces “Privacy Pools,” a smart contract-based protocol designed to reconcile financial privacy with regulatory compliance. The news was shared to Blockchain.News by Ameen Soleimani.
Authors: Vitalik Buterin (Ethereum Foundation), Jacob Illum (Chainalysis), Matthias Nadler (University of Basel), Fabian Schar (Center for Innovative Finance, University of Basel), Ameen Soleimani (Privacy Pools)
Publication Date: September 6, 2023
Abstract: The paper focuses on “Privacy Pools,” a protocol that employs zero-knowledge proofs to allow users to prove the lawful or unlawful origin of their funds without revealing their entire transaction history.
Keywords: Blockchain, Privacy, Regulation, Smart Contracts, Zero-Knowledge Proofs
Full Paper: SSRN
The paper aims to address the perceived incompatibility between privacy and regulatory compliance in blockchain transactions. It introduces “Privacy Pools,” a protocol that uses smart contracts to enhance privacy while allowing for regulatory oversight.
How It Works
The protocol enables users to publish a “zero-knowledge proof” to demonstrate that their funds do not originate from known unlawful sources. This is achieved without revealing the user’s entire transaction graph, thereby maintaining privacy.
Implications for Users
Honest Users: The protocol incentivizes honest users to prove the origin of their funds, separating them from dishonest users who cannot provide such proof.
Regulatory Compliance: The protocol can be adapted to meet various regulatory requirements, making it easier for users to comply without sacrificing privacy.
The authors view this paper as a stepping stone towards a future where financial privacy and regulatory compliance can coexist. They aim to foster a constructive dialogue on this subject, shifting the conversation in a more positive direction.
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