Vitalik Buterin and friends may have found a genuine solution to blockchain’s privacy-leaking problem. Or at least a new way to build cryptocurrency mixers that maybe won’t get their operators thrown in jail.
In case you didn’t see it last week, there’s a new theoretical paper going around co-written by Buterin that explores a way of combining a few existing technologies like buzzy zero-knowledge proofs and lesser known “Privacy Pools” to build something wonderfully unique.
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In essence, this is both a technological technology and a social technology, a way of joining a crypto washing pool to hide your own blockchain history while also having the right to dissociate from criminals or bad actors who would want to abuse a privacy tool for money laundering.
Of course, not everyone is happy about this happy medium between compliance and privacy. A few cypherpunks worth admiring have found the notion of picking and choosing who to interact with in a smart contract a nonstarter given that digital technologies are meant to level the playing field by treating everyone equitably.
Also, isn’t the idea of “compliant privacy” a bit oxymoronic in the age of the Bank Secrecy Act?
Jacob Illum, a co-author and Chainalysis researcher, appeared on CoinDesk TV on Monday to talk about the research and address some of the controversy. (His co-authors besides Buterin include early Tornado Cash contributor Ameen Soleimani as well as two academics from the University of Basel Fabian Schär and Matthias Nadler.)
“The main idea is how do we achieve some sort of financial privacy on the blockchain,” Illum said.
Blockchains are by default transparent – it’s part of the whole deal. Nodes need to be able to validate transactions and the system can only be “trustless” insofar as everyone can independently verify the same data. This is a revolutionary idea in terms of establishing relationships between counterparties and settling transactions, but presents an obvious problem if the blockchain’s built-in pseudo-anonymity is ever cracked.
And cracked it has been.
It is possible to use Bitcoin or Ethereum today privately,…
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