Blockchain Privacy and Regulatory Compliance: Towards a Practical Equilibrium

10 Pages Posted: 9 Sep 2023

See all articles by Vitalik Buterin

Vitalik Buterin

Ethereum Foundation

Jacob Illum

Chainalysis

Matthias Nadler

University of Basel

Fabian Schär

Center for Innovative Finance, University of Basel; University of Basel - Economics Department

Ameen Soleimani

Privacy Pools

Date Written: September 6, 2023

Abstract

In this paper we study Privacy Pools, a novel smart contract-based privacy-enhancing protocol. We discuss the pros and cons of this protocol, and show how it could be employed to create a separating equilibrium between honest and dishonest users. 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 graph. This is achieved by proving membership in custom association sets that satisfy certain properties, required by regulation or social consensus. The proposal may be a first step towards a future where people could prove regulatory compliance without having to reveal their entire transaction history.

Keywords: Blockchain, Privacy, Regulation, Smart Contracts, Zero-Knowledge Proofs

Suggested Citation

Buterin, Vitalik and Illum, Jacob and Nadler, Matthias and Schär, Fabian and Soleimani, Ameen, Blockchain Privacy and Regulatory Compliance: Towards a Practical Equilibrium (September 6, 2023). Available at SSRN: https://ssrn.com/abstract=4563364 or http://dx.doi.org/10.2139/ssrn.4563364

Vitalik Buterin

Ethereum Foundation ( email )

Jacob Illum

Chainalysis ( email )

New York, NY
United States

Matthias Nadler

University of Basel ( email )

Petersplatz 1
Basel, CH-4003
Switzerland

Fabian Schär (Contact Author)

Center for Innovative Finance, University of Basel ( email )

Basel, 4001
Switzerland

HOME PAGE: http://cif.unibas.ch

University of Basel - Economics Department ( email )

Petersgraben 51
Basel, CH-4003
Switzerland

Ameen Soleimani

Privacy Pools ( email )

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