That conversation, he says, is about whether it’s technically possible to satisfy authorities’ need to trace the passage of stolen cryptocurrency while still affording crypto users the financial privacy they demand.
Privacy Pool will use a cryptography technology called a “zero-knowledge proof,” by which users are able to demonstrate that their crypto withdrawals are unconnected to deposits made by known criminal wallets.
The basic premise, Soleimani says, is that users can “withdraw without revealing who they are by publicly proving who they are not.”
However, Soleimani admits that the exact mechanics of the zero-knowledge proof are a mystery even to him. He decided to use it after being approached by an anonymous developer known asTwister, who is working on implementation of the technology. Soleimani says he doesn’t know much about Twister but isn’t concerned about working with an unknown quantity because the service is just a pilot at the moment.
Andrew Thurman, head of content at blockchain analytics company Nansen, says these kinds of proofs are “poised to play a key role” in affording anonymity to crypto users. The technology isgaining traction in crypto circles as developers explore different applications; Ethereum side-chainPolygon is making particularly heavy use of it, and Buterin has beenvocal about its potential.
Under Soleimani’s system, individual users will be responsible for marking out which other depositors they do not want to be associated with. In practice, he imagines that will mean using blacklists compiled by companies like Nansen, which monitors public blockchains for criminality.
In theory, such a design would also limit the amount of funds tied to criminal activity that pass through the mixer, he claims, “because everyone else using it will have the option to isolate [criminal addresses],” reducing the size of the pool in which bad actors can hide.
The system wouldn’t mean that criminals couldn’t operate on the mixer, only that they wouldn’t be able to access its full liquidity.
Soleimani says that an alternative system, where an administrator maintains a blocklist to bar bad actors from the platform entirely, would be prohibitively expensive because adding addresses to a blockchain-hosted list comes at a cost each time, and criminals frequently hop between wallets. It would also raise ethical questions around whether one individual should make a judgement about who is allowed to use the service.
“I don’t think I should be in charge of deciding who the good and bad people are for everyone—and nor should anyone else,” says Soleimani. “This system is different because it allows individuals the choice of who they associate with or not.”
Soleimani says that Privacy Pools’ clients are likely to be people who want to make transactions privately—those who want to donate to political causes anonymously or conceal the size of their crypto-denominated salary, for example.
Even before the technical details were released, the project began receiving messages of support from the cypherpunk community, which advocates for the use of cryptography to safeguard personal privacy.
“Cypherpunks like privacy, institutions like privacy, casual investors like privacy,” says Thurman. “It will be warmly welcomed.”
