{"id":"privacy-pools","version":1,"language":"en","title":"Privacy Pools","hidden":false,"content":"**Privacy Pools** are a novel [smart contract](https://iq.wiki/wiki/smart-contract)-based tool that enhances the privacy of user’s transactions while still allowing users to benefit from the public nature of the [blockchain](https://iq.wiki/wiki/blockchain).[\\[2\\]](#cite-id-fa2km3cqc1n)[\\[3\\]](#cite-id-2afchtq7792)  \n$$widget0 [YOUTUBE@VID](ugXNfziKbPE)$$  \n  \n# Overview  \n  \nPrivacy pools are a new concept that allows users to deposit [cryptocurrency](https://iq.wiki/wiki/cryptocurrency) into a shared pool while keeping ownership of the currency private. The pool uses cryptographically hidden records to track ownership, and users can withdraw without any connection to previous deposits. Privacy pools also allow users to demonstrate the legitimacy of their transactions without revealing specifics.  \n  \nThe core idea for Privacy Pools is to allow users to publish a [zero-knowledge proof](https://iq.wiki/wiki/zero-knowledge-proofs-zkps) demonstrating that their funds originate from known lawful sources, without publicly revealing their entire transaction graph. Once that proof is validated, their wallet address would be added to an \"allowlist\" by a [smart-contract](https://iq.wiki/wiki/smart-contract) protocol, allowing them to join a group of users whose transactions are batched and mixed together. This mixing provides user privacy by making it difficult to identify which user in the pool was ultimately the sender of the transaction.[\\[1\\]](#cite-id-tesqsdabb5g)[\\[3\\]](#cite-id-2afchtq7792)  \n  \nPrivacy pools are a proposal by [Ethereum](https://iq.wiki/wiki/ethereum) founder [Vitalik Buterin](https://iq.wiki/wiki/vitalik-buterin) alongside members of the Ethereum community as well as researchers from [blockchain](https://iq.wiki/wiki/blockchain) analytics firm Chainalysis that offer a compelling solution to this problem. Privacy pools are a first step in demonstrating that user privacy and regulatory compliance don't have to be mutually exclusive concepts.[\\[3\\]](#cite-id-2afchtq7792)  \n  \n# How Privacy Pool Works  \n  \n![1_9j_-qlDiI8RNxlXtWP8B-Q.jpg](https://ipfs.everipedia.org/ipfs/QmYSnRdysP4G8utWNRKGVo3xysNYmDJVvTyhJjiJumxjCE)  \nPrivacy Pools aim to protect the privacy of transactions while separating criminal activities from lawful funds by organizing them into isolated sets or categories, allowing users to prove to regulators that their funds are not mixed with illicit funds.  \n  \nThis is accomplished through the use of techniques like [zero-knowledge proofs](https://iq.wiki/wiki/zero-knowledge-proofs-zkps) to demonstrate the legitimacy of the transactions and the absence of involvement with criminal activities. Zero-knowledge proofs are cryptographic techniques that allow one party (the prover) to demonstrate knowledge of a specific piece of information to another party (the verifier) without revealing any details about the information itself.  \n  \nWhen users want to take their money out of the Privacy Pool, they can choose to create a [zero-knowledge proof](https://iq.wiki/wiki/zero-knowledge-proofs-zkps). This proof does two things: First, it confirms that the user’s transaction is legitimate and does not involve a [blockchain](https://iq.wiki/wiki/blockchain) address associated with criminal activity. Second — and more importantly for users — it keeps their identities private.[\\[6\\]](#cite-id-p6n5s0wcxy)  \n  \nPrivacy pools that make use of zero-knowledge technology could theoretically solve part of this issue since they would give users privacy around transaction data while also distinguishing it from any criminal activity. By pooling honest transactions together, users could prove that their transactions come from one of the honest deposits.  \n  \nPrivacy Pool operates similarly to [Tornado Cash](https://iq.wiki/wiki/tornado-cash) by mixing multiple user transactions to obscure their true origins. However, when users choose to withdraw funds, they have the option to generate a [zero-knowledge proo](https://iq.wiki/wiki/zero-knowledge-proofs-zkps)f.[\\[7\\]](#cite-id-03ne7ra1t369)  \n  \n# Criticism  \n  \n* Vulnerability to private key transfers  \n* Innocent-until-proven-guilty  \n  \nSome users criticized the notion of privacy pools on a more fundamental, philosophical level. For example, [Zooko Wilcox](https://iq.wiki/wiki/zooko-wilcox), founder of [Zcash](https://iq.wiki/wiki/zcash), one of the earliest and most prominent blockchain networks that use [zero-knowledge proofs](https://iq.wiki/wiki/zero-knowledge-proofs-zkps) for private transactions, believes the strongest possible privacy guarantees for individuals come from systems that look as close to \"cash\" as possible. His criticism of privacy pools focuses on the fact the construction is expressly the opposite of the “innocent-until-proven-guilty” principle upon which U.S. and European legal systems are based.[\\[3\\]](#cite-id-2afchtq7792)","summary":"Privacy Pools are a smart contract-based tool enhancing transaction privacy on blockchain, by allowing users to prove funds legitimacy without revealing their transaction data.","categories":[{"id":"defi","title":"Decentralized Finance"}],"promoted":0,"tags":[{"id":"DEXes"},{"id":"Glossary"},{"id":"Blockchains"}],"metadata":[{"id":"references","value":"[{\"id\":\"tesqsdabb5g\",\"url\":\"https://papers.ssrn.com/sol3/papers.cfm?abstract_id=4563364\",\"description\":\"SSRN - Blockchain Privacy and Regulatory Compliance: Towards a Practical Equilibrium\",\"timestamp\":1713429012044},{\"id\":\"fa2km3cqc1n\",\"url\":\"https://www.coindesk.com/tech/2023/09/06/ethereums-vitalik-buterin-argues-for-blockchain-privacy-pools-to-weed-out-criminals/\",\"description\":\"Coindesk - Ethereum's Vitalik Buterin Argues for Blockchain 'Privacy Pools' to Weed Out Criminals\",\"timestamp\":1713429090320},{\"id\":\"2afchtq7792\",\"url\":\"https://www.forbes.com/sites/digital-assets/2023/10/31/public-ledgers-to-privacy-pools-a-balanced-approach-to-compliance/?sh=29bad29e4f8d\",\"description\":\"Forbes - Public Ledgers To Privacy Pools: A Balanced Approach To Compliance\",\"timestamp\":1713581571435},{\"id\":\"n4t0xr7r5x\",\"url\":\"https://medium.com/i-am-innovation-lab/a-new-blockchain-privacy-primitive-862d5fde07ee\",\"description\":\"Medium - Privacy Pools: Balancing Blockchain Transparency with Individual Privacy\",\"timestamp\":1713584295835},{\"id\":\"zyp9y243sn\",\"url\":\"https://www.coindesk.com/policy/2022/08/08/crypto-mixing-service-tornado-cash-blacklisted-by-us-treasury/\",\"description\":\"Coindesk - Crypto-Mixing Service Tornado Cash Blacklisted by US Treasury\",\"timestamp\":1713584515153},{\"id\":\"p6n5s0wcxy\",\"url\":\"https://cointelegraph.com/news/crypto-privacy-pools-regulation\",\"description\":\"Cointelegraph - Can crypto Privacy Pools help balance privacy and regulation?\",\"timestamp\":1713586165597},{\"id\":\"03ne7ra1t369\",\"url\":\"https://decrypt.co/155278/vitalik-buterin-pushes-for-privacy-pools-to-balance-anonymity-with-regulatory-compliance\",\"description\":\"Decrypt- Vitalik Buterin Pushes for ‘Privacy Pools’ to Balance Anonymity With Regulatory Compliance\",\"timestamp\":1713586605793}]"},{"id":"reddit_profile","value":"https://www.reddit.com/r/ethtrader/comments/16cu5qt/ethereums_vitalik_buterin_argues_for_blockchain/"},{"id":"medium_profile","value":"https://medium.com/i-am-innovation-lab/a-new-blockchain-privacy-primitive-862d5fde07ee"},{"id":"previous_cid","value":"QmdWxHAsa7R3drjefSJed9R93SHCFxzBCyp5rf8LRo1aG1"}],"user":{"id":"0x6753061a4cffbc0A617e57E956A298D88702a94B"},"author":{"id":"0xF8bD29570D276c593125205A714D2623B311D2ce","profile":{"username":"Jaewon","avatar":""}},"media":[{"name":"ugXNfziKbPE","id":"https://www.youtube.com/watch?v=ugXNfziKbPE","size":"0","type":null,"source":"YOUTUBE"},{"name":"1_embIIlkVY","id":"https://www.youtube.com/watch?v=1_embIIlkVY","size":"0","type":null,"source":"YOUTUBE"},{"name":"1_9j_-qlDiI8RNxlXtWP8B-Q.jpg","id":"QmYSnRdysP4G8utWNRKGVo3xysNYmDJVvTyhJjiJumxjCE","size":"0.15","type":"GALLERY","source":"IPFS_IMG"}],"views":46,"events":[],"linkedWikis":{"founders":[],"blockchains":[]},"ipfs":"QmdWxHAsa7R3drjefSJed9R93SHCFxzBCyp5rf8LRo1aG1","transactionHash":"0x1ebed9d711d48ab8b112f5248d5409d56dc5234f599ca5500f4a948990d0f745","created":"2024-04-20T03:30:40.766Z","updated":"2024-05-09T12:07:16.775Z","images":[{"id":"Qmes2FobNTkZruEa9ghso33QM7y2e4QaEQxvqaBoufYoBg","type":"image/jpeg, image/png"}]}