Privacy Pools are a protocol that protects privacy on Blockchain, allowing users to hide transaction history but still prove the legal origin of assets using Zero-knowledge Proofs technology.
Unlike traditional coin mixing tools, Privacy Pools offer a more flexible mechanism, enabling users to actively prove legal compliance through the “Association Set,” rather than creating a completely opaque system.
MAIN CONTENT
Privacy Pools help balance privacy and compliance on Blockchain using ZK-SNARKs.
The Association Set mechanism allows proving or excluding the source of transactions without revealing the entire history.
The operational model is transparent, flexible, and can integrate with KYC/AML compliance organizations.
What are Privacy Pools?
Privacy Pools are a protocol enhancing privacy on Blockchain built using Smart Contracts.
It helps users secure transaction history while still being able to prove that assets do not come from illegal sources.
The core technology of Privacy Pools is Zero-knowledge Proofs (ZK-SNARKs). With this, users can prove legality without disclosing transaction details. This is a path that balances personal privacy and legal compliance requirements.
"Privacy does not equate to absolute anonymity. Privacy Pools allow for legal proof while still protecting sensitive data."
Vitalik Buterin – Founder of Ethereum, 2023, in a discussion about privacy on Blockchain
How do Privacy Pools differ from Tornado Cash?
Unlike Tornado Cash, Privacy Pools not only create an anonymous Mixing Pool but also allow users to define a trusted capital set to prove the origin of assets.
The highlight is controlled transparency. Rather than being seen as a tool for concealing risk, Privacy Pools aim to build a more legitimate system that is positively viewed by the community and regulatory bodies.
What is the Association Set in Privacy Pools?
The Association Set is a list of trusted deposits that users can choose to prove their assets do not come from risky sources.
Users or organizations providing Association Sets (ASPs) can establish criteria based on KYC/AML or risk scoring systems. This opens up the possibility of collaboration between the community and financial regulatory bodies.
"The Association Set is the key point that differentiates Privacy Pools, as it allows for selective transparency rather than absolute anonymity."
Ari Juels – Professor at Cornell Tech, co-author of multiple studies on ZK-SNARKs, 2022
How does the proof mechanism work in Privacy Pools?
Privacy Pools provide two proof mechanisms: Membership Proof (proof of belonging to a valid set) and Exclusion Proof (proof of not belonging to a risk set).
This allows users to flexibly choose how to prove while meeting requirements from partners or regulatory bodies without disclosing all data.
What are the main components of Privacy Pools?
Privacy Pools are implemented based on several core components: Smart Contract managing coin ID and Nullifier, Merkle Tree storing coin ID, Nullifier Set preventing double spending, and Zero-knowledge Proofs as a verification tool.
Additionally, Association Set Providers (ASPs) act as trusted intermediaries, providing sets of coin IDs according to transparent standards or financial regulations.
How does the process of depositing and withdrawing in Privacy Pools work?
Users deposit money by creating Coin IDs, adding to the Merkle Tree, and recording on the Blockchain. When withdrawing, they use ZK-SNARKs to prove ownership without revealing Coin ID.
The withdrawal process involves checking the Merkle branch in the main tree and in the Association Set. If valid and the Nullifier has not been used, the transaction will be confirmed while maintaining privacy.
"ZK-SNARKs open a new era in decentralized financial transactions, where privacy and compliance can coexist."
PwC Blockchain Report, 2023
What do flexible proof and Sequential Proofs mean?
Privacy Pools allow the creation of public Proofs or only disclosing to partners (Bilateral Proof). Users can recreate proofs (Re-proof) when needing to prove to another set.
Sequential Proofs help maintain privacy when assets are transferred across multiple parties, ensuring that each subsequent party can prove validity without revealing the full history.
Can Privacy Pools become a neutral infrastructure in Blockchain?
Yes. Privacy Pools are designed to reconcile the interests of individuals, financial institutions, and regulatory bodies. This is a new step towards resolving the conflict between privacy and legal compliance.
However, technical and legal challenges still exist. Further studies on security, scalability, and legal frameworks will determine whether Privacy Pools can become the standard in the Blockchain ecosystem.
"Privacy technologies like Privacy Pools can help Blockchain develop more sustainably by meeting legal requirements without sacrificing freedom."
Joseph Lubin – CEO of ConsenSys, 2023
Frequently Asked Questions
Are Privacy Pools legal?
Privacy Pools aim for legal compliance through the Association Set mechanism, unlike absolute anonymity tools like Tornado Cash.
Do I need to disclose my transaction history when using Privacy Pools?
No. Users only need to prove the legality of their assets through ZK-SNARKs without disclosing the entire transaction history.
Who provides the Association Set in Privacy Pools?
The Association Set can be created by users themselves or provided by intermediary organizations (ASPs) based on KYC/AML standards.
Can Privacy Pools replace Tornado Cash?
No. Privacy Pools represent a distinctive advancement, focusing on balancing privacy and compliance rather than just anonymity.
Can Privacy Pools be used in financial institution transactions?
Yes. Thanks to controlled transparency, the protocol meets the requirements of financial institutions and regulatory bodies.
Source: https://tintucbitcoin.com/privacy-pools-la-gi/
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