Vitalik Buterin co-authors a paper on “Privacy Pools”, a blockchain protocol to verify the legality of user funds without revealing a full transaction history
Privacy Pools extends Buterin’s earlier work on privacy mechanisms: a stealth-address proposal focused on making Ethereum transfers less linkable, while this paper centers on demonstrating that funds meet a legality criterion without exposing a user’s entire history.
It also sits alongside the use of zero-knowledge proofs for privacy-preserving verification, including proof-of-solvency designs for exchanges. The significance is the attempt to address privacy and compliance as a joint protocol-design problem rather than as competing goals.
First-order effects
The paper gives wallet, protocol, and compliance-tool developers a concrete research framework for proving fund legality while withholding a full transaction trail.
For users of privacy-oriented blockchain tools, the proposed model would replace an all-or-nothing disclosure choice with selective verification—if it is implemented and adopted.
Second-order effects
Privacy-focused protocols would face pressure to show how their tools can support verifiable screening, not merely transaction obfuscation.
Exchanges and other gateways could evaluate zero-knowledge verification as an alternative to collecting or exposing more transaction data, building on privacy-preserving solvency proofs.
Third-order effects
If selective, cryptographic compliance becomes practical, blockchain privacy may shift from a feature associated with concealment toward infrastructure for controlled disclosure.
The broader outcome remains uncertain: standards for what counts as “legal” funds and who sets those rules could determine whether such systems preserve meaningful user privacy or become another compliance layer.
The trend: Privacy Pools is part of a wider move to use zero-knowledge proofs to reconcile blockchain privacy with demands for verifiability and legitimacy.
3/ With Privacy Pools, users can publish zero-knowledge proofs that their withdrawal originated from an “association set” that excludes known illicit deposits. In theory, this allows users to prove regulatory compliance and still maintain privacy while using public blockchains. […
It was inevitable that ZKPs would end up designed to prove compliance, but the real breakthrough where imo is the combination of transactional privacy. However unlikely , this is an application that central banks have already experimented with through various designs
Privacy Pools has the potential to be the most important tool we have to address regulatory challenges while maintaining privacy on public blockchains.
🚨 News of the Year 🚨 Ameen Soleimani, Vitalik, Chainalysis researcher, Jacob Illum, and others may have just solved the transaction privacy vs. reg surveillance tension issue for crypto. It's Tornado Cash, but provably disassociated from illicit actors and stolen funds. [image]
Ok I just got back from doing a bunch of shielded Zcash transactions at the neighborhood coffee shop and two different people sent me this tweet. Having read nothing but the title, byline, and first paragraph of the abstract, I have a HOT FUCKING TAKE 🔥🔥🔥 ⤵️
I'd love to fund the development of a privacypools snap via the MetaMask grants DAO. This is probably the shortest path to getting privacypools wallet support available to the widest set of wallet users. If you're interested, here is the grants application & snaps docs site:...
This is a very interesting paper—it proposes a “compliant” version of the now sanctioned Tornado Cash. However, I'm skeptical this is enough to pass the bar established by the DOJ. Here's the TL;DR for the big idea in this paper 👇
Read the paper. Very happy to see it formalized in such a form. As far as I can see it's a formalization of what Ameen talked about in his Ethdam talk We need ways to make privacy work and acceptable by institutions. Anonymizing out of your public address should not be a crime.
Very exciting news bridging privacy and compliance! Presented yesterday at @UniBasel_en conference with @fschaer @ameensol @mat_nadler Jakob Illum and @VitalikButerin [image]
@fschaer ... 11/ The next step for Privacy Pools, besides continuing to engage regulators, is to automate the generation of the “association set”. The “point-and-click” association set builder in our demo is obviously not going to scale. DM to help with dev! https://twitter.com/.…
@fschaer ... 10/ Upon returning home to the USA, I will continue to try and engage US financial regulators, especially @USTreasury OFAC & FinCEN. I hope to discuss how Privacy Pools could help advance our national security objectives, and also help combat money laundering. [image…
Very excited to share our new paper. This is joint-work with @VitalikButerin, Jacob Illum (@chainalysis), @mat_nadler (@UniBasel_en) and @ameensol. Full Paper: https://papers.ssrn.com/... [image]
1/ New privacy paper with @VitalikButerin, Jacob Illum (@chainalysis), @mat_nadler, @fschaer! https://papers.ssrn.com/... We explored new compliance opportunities made possible by https://privacypools.com/, where users can provably dissociate from illicit funds. story below 🧵👇 [i…
also - please check out the “Proof of Innocence” project by @chainway_xyz which uses a similar technique to provide a path towards compliant privacy! https://proofofinnocence.com/
@fschaer ... 9/ Yesterday, it was my distinct honor to join Fabian & Matthias in Switzerland, to present our paper at the University of Basel “Finance meets DLT” conference. I am grateful to Fabian for the opportunity to engage European financial regulators in person. [image]