In a research paper published Wednesday, Ethereum co-founder Vitalik Buterin and four co-authors proposed a new way to enhance the privacy of blockchain transactions while also separating criminal activity from innocent funds.
The proposed solution, called “privacy pools,” is a smart contract-based protocol that would allow users to pool their transactions together, obscuring the identities of the senders and receivers. This would make it more difficult for law enforcement to track criminal activity, but it would still allow legitimate users to enjoy the benefits of privacy.
The paper argues that privacy pools are a necessary compromise between the need for privacy and the need to combat crime. It acknowledges that blockchain technology is inherently transparent and that this transparency can be used by criminals to launder money and evade law enforcement.
The paper also discusses the use of zero-knowledge technology in privacy pools. It suggests that Privacy pools that make use of zero-knowledge technology could theoretically solve part of this issue.
Since they would give users privacy around transaction data while also distinguishing it from any criminal activity. By pooling honest transactions together, users could prove that their transactions came from one of the honest deposits.
Vitalik acknowledges that Tornado Cash was a good solution to privacy issues, but that it had limited options to dissociate from criminal activity on the network.
However, the paper argues that privacy pools can be designed in a way that still allows law enforcement to track criminals, while also protecting the privacy of legitimate users.
“Privacy pools are a promising solution to the problem of balancing privacy and security on blockchains,” said Vitalik. “They could help to protect the privacy of legitimate users, while also allowing law enforcement to track criminals.”
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