In a new research paper, Ethereum co-founder Vitalik Buterin and a group of experts suggested a technological feature that can separate transactions from honest users and dishonest users. They have suggested creating “privacy pools” of good-only association sets. This feature will offer privacy around the transaction size while meeting the regulatory concerns that the funds and transactions are legit.
The paper, titled Blockchain Privacy and Regulatory Compliance: Towards a Practical Equilibrium, is authored by Vitalik Buterin, Jacob Illum (Chainalysis), Matthias Nadler (University of Basel), Fabian Schär (University of Basel), Ameen Soleimani (Privacy Pools).
“The core idea of the proposal is to allow users to publish a zero-knowledge proof, demonstrating that their funds (do not) originate from known (un-)lawful sources, without publicly revealing their entire transaction transaction graph. This is achieved by proving membership in custom association sets that satisfy certain properties, required by regulation or social consensus,” the paper’s authors said in the abstract.
They added that the proposal may be a first step towards a future where people could prove regulatory compliance without revealing their entire transaction history.
They have also tried to dispel the notion that privacy and regulatory compliance are incompatible. The paper suggests that the privacy factor can get a boost if it can be established that the origin of the funds is clean.