Author: KarenZ, Foresight News
On April 1st, on-chain privacy infrastructure 0xbow officially launched the Privacy Pools mainnet. Privacy Pools, drawing from the research by Ethereum co-founder Vitalik Buterin and others, provides Ethereum users with a mixing solution that protects on-chain privacy while clearly distinguishing from illegal funds.
This article will introduce the concept, origin, development team, operational mechanism, and potential industry impact of Privacy Pools.
What are Privacy Pools?
Privacy Pools is a new blockchain privacy tool designed to provide users with anonymous transaction capabilities while ensuring the compliance of fund sources.
Unlike traditional mixing services (such as Tornado Cash), Privacy Pools uses zero-knowledge proofs (ZKP) and Association Set Provider (ASP) design to protect user privacy while preventing illegal funds from entering the transaction pool.
This mechanism satisfies ordinary users' privacy needs while responding to regulators' compliance requirements, offering a viable path for the DeFi ecosystem that balances privacy and legality.
Who Proposed and Released Privacy Pools?
The concept of Privacy Pools originated from a research paper co-authored in 2023 by Vitalik Buterin, Jacob Illum (Chainalysis Chief Scientist), Matthias Nadler (Basel University Ph.D. candidate), Fabian Schär (Professor at Basel University's Center for Innovative Finance), and Ameen Soleimani (Privacy Pools).
The paper explored how to balance privacy and compliance on the blockchain, proposing a new privacy-enhanced protocol called Privacy Pools based on smart contracts, explaining how privacy pools can serve as neutral infrastructure to make public blockchains compliant across jurisdictions.
The Privacy Pools protocol was released by the 0xbow team. 0xbow is a startup focused on blockchain privacy and compliance infrastructure. Key team members include:
- Co-founder Zak Cole: Also co-founder of BTCFi project corn, managing partner at Number Group, and author of EIP-6968.
- Strategic Advisor Ameen Soleimani: Also co-founder of Reflexer Finance and IranUnchained, previously worked at ConsenSys, Filter, and other companies.
The project's investors include Number Group, Vitalik, BanklessVC, Public Works, and several angel investors.
After the Privacy Pools mainnet launch, both Vitalik and Ethereum core developer Tim Beiko deposited 1 ETH into the privacy pool to show support.
How Do Privacy Pools Work?
The Privacy Pools architecture consists of a contract layer, zero-knowledge layer, and Association Set Provider (ASP) layer. The contract layer manages assets and state, the zero-knowledge layer ensures privacy, and the ASP layer provides compliance functionality.
Specifically, zero-knowledge proofs allow users to prove they belong to a group of approved depositors without revealing their complete transaction history.
The ASP plays the role of a compliance layer tool, approving deposits that meet predefined criteria and verifying that all private withdrawals only come from approved deposits. The ASP consists of two parts:
1. Service Stack: A modular service suite that continuously monitors, records, and categorizes on-chain activities, assessing user credibility based on their on-chain behavior.
2. On-Chain Instances: Including Public Registry and ZKP Verifier. The Public Registry stores and manages ASP data through smart contracts, achieving seamless integration with blockchain protocols; the ZKP Verifier is responsible for verifying zero-knowledge proofs, ensuring the privacy of transaction compliance verification.
The ASP mechanism continuously monitors on-chain transactions, periodically updating the "association set". Users can generate zero-knowledge proofs (ZKP) to prove their transactions belong to a compliant set without revealing specific transaction details. Developers can use ASP to define rule-based access control, filtering user qualifications (such as excluding users associated with illegal activities), thus balancing privacy and compliance.
Privacy Pools allows users to encrypt transactions through a mixing protocol while still proving their funds come from legal sources. The specific operation process is as follows:
- Wallet Connection and Dedicated Wallet Creation: Users connect to the Privacy Pools system through a compatible wallet, creating a dedicated 0xbow wallet (to be used only for privacy pools).
- Deposit: Deposit ETH into the privacy pool. The initial version supports a maximum deposit of 1 ETH, with a minimum of 0.1 ETH. After depositing funds, 0xbow ASP will review the fund source, and if the funds are not from illegal activities, they will be accepted into the association set. After transaction confirmation, the deposited funds become part of the anonymous set. Deposits will appear in the Privacy Pools smart contract.
- Withdrawal: Specify the fund receiving address. The dApp will automatically generate a zero-knowledge proof in the user's browser. Confirm to complete the withdrawal transaction, transferring funds to the specified address.
It's worth noting that as the ASP continuously updates its rules, initially approved deposits may be disqualified. This means that even if users pass initial screening, they may still be prohibited from withdrawing.
Summary
The launch of Privacy Pools provides users with a tool that balances privacy and compliance, potentially encouraging more institutions and enterprises to adopt blockchain technology.
By isolating illegal funds, Privacy Pools helps reduce regulatory pressure on the industry and clears obstacles to industry development to some extent. Additionally, other privacy protocols can integrate the ASP mechanism to enhance their compliance and promote the standardization of privacy technology. Ordinary users can also participate in on-chain activities more safely and compliantly, redefining the "norm" of blockchain privacy.
However, Privacy Pools still faces many challenges on its path to success, including the credibility of ASP, the centralization review boundaries of ASP, regulatory adaptability across different jurisdictions, and the attitude of regulatory authorities.
References:
https://papers.ssrn.com/sol3/papers.cfm?abstract_id=4563364
https://docs.privacypools.com/
https://0xbow.io/blog/getting-started-with-privacy-pools
