The paper argues for “privacy pools,” a tech feature that would enhance the privacy of user’s transactions while also separating criminal activity from innocent funds in different sets.
due to its alleged use by the North Korean hacking group Lazarus as a tool for money laundering.
Buterin acknowledged that Tornado Cash was a good solution to privacy issues, but that it had limited options to dissociate from criminal activity on the network.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 come from one of the honest deposits.
“All users with ‘good’ assets have strong incentives and the ability to prove their membership in a ‘good’-only association set,” the paper says. “Bad actors, on the other hand, will not be able to provide that proof.” As more regulators crack down on criminal activity on the blockchain, Buterin aims to show that these technological innovations can comply with regulations.
“In many cases, privacy and regulatory compliance are perceived as incompatible,” the authors wrote. “This paper suggests that this does not necessarily have to be the case, if the privacy-enhancing protocol enables its users to prove certain properties regarding the origin of their funds.”
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