Vitalik et al. publish the paper “Blockchain Privacy and Regulatory Compliance: Towards a Practical Balance”

Vitalik Buterin today jointly published a paper titled "Blockchain Privacy and Regulatory Compliance: Towards a Practical Equilibrium" with researchers from Chainalysis, the University of Basel and other institutions. The article examines Privacy Pools, a new privacy-enhancing protocol based on smart contracts. The article discusses the pros and cons of the protocol and shows how it can be leveraged to create a separating balance between honest and dishonest users. The core idea of ​​the proposal is to allow users to issue zero-knowledge proofs that their funds (do not) come from known (il)legal sources without publicly revealing their entire transaction graph. This is achieved by proving membership in a custom association set of certain attributes that satisfy regulatory or social consensus requirements. The proposal could be the first step towards a future where people can demonstrate regulatory compliance without revealing their entire trading history.