Vitalik Buterin co-authors study on Privacy Pools as an alternative to Tornado Cash

Ethereum co-founder Vitalik Buterin has co-authored исследования о Privacy Pools — a privacy protocol that complies with regulatory requirements, which could serve as an alternative to Tornado Cash.

The document was also prepared by developer Amin Suleimani, Chainalysis researcher Jacob Illum, and scientists Mattias Nadler and Fabian Shar.

The project’s main goal is to create a ‘separating equilibrium’—a mechanism for filtering funds linked to criminal activity and balancing privacy with regulatory requirements.

Privacy Pools uses zero-knowledge proofs (ZKP).

“The core idea of the proposal is the ability to publish ZRP. The latter would attest that funds do not originate from known illicit sources, without publicly disclosing the entire transaction graph.” — according to the abstract of the paper.

Privacy and regulation can coexist, according to the authors.

Researchers described Tornado Cash as a useful privacy tool, but acknowledged its vulnerability to abuse by illicit actors.

In August 2022, OFAC placed on the sanctions list the Tornado Cash site, which, according to the agency, criminals laundered cryptocurrency worth more than $7 billion. More than $455 million of that is linked to the North Korean Lazarus Group.

On arrested developer Alexey Pertsev on suspicion of involvement in laundering funds and concealing illicit financial flows. He denied all charges.

In April 2023, the court changed the remand for Pertsev to house arrest.

Earlier this year, Vitalik Buterin described privacy as ‘the biggest remaining problem’ for Ethereum and proposed a solution.