Regulators are cracking down on financial privacy, but ZK proof can help.
Regulators are cracking down on privacy protocols like cryptocurrency mixers, but zero-knowledge proofs (ZK proofs) could provide a solution for both developers and regulators.
Providing privacy protections in a legally compliant manner is one of the biggest concerns of today’s privacy-focused blockchain protocols, which can be used by almost anyone with Internet access.
However, the evolution of ZK Proof, along with other privacy paradigms such as decentralized identity verification systems, could help ensure that the protocol maintains privacy and does not serve terrorist organizations or money launderers, said co-expert Matthew Niemer. says: Founder and President of AlephZero.
In an interview with Cointelegraph, Niemerg explained:
Regulatory compliance for the privacy-focused protocol increased further on May 14 after Dutch authorities sentenced Tornado Cash developer Alexey Pertsev to five years and four months in prison for laundering $1.2 billion worth of illicit digital assets on the platform. It has become important.
This sentencing comes despite Tornado Cash being a non-custodial cryptocurrency hybrid protocol. This means that funds passing through the protocol are never held or controlled.
According to AlephZero’s Niemerg, in a promising development for open source code developers, ZK proof could be used to ensure that none of the cryptocurrencies on an established platform have previously been associated with illegal activity.
“At the time of the last 20 transactions or block
With a decentralized Web3 identity for each user, ZK proofs can be used to ensure that funds and wallets are not associated with criminal activity while maintaining user anonymity.
However, Niemerg pointed out that both ZK proof and decentralized identity systems require more development before these complex features can be enabled.
Related: Coinbase recovers after system-wide outage, but user withdrawals remain offline.
Financial privacy is not a crime
For AlephZero, helping developers build compliant privacy tools is a priority, according to Niemerg.
“There are a lot of real, real-world use cases when it comes to private transactions… Just because you want privacy doesn’t mean you’re doing something wrong.”
Concerns about financial privacy have been growing since 2022, when the U.S. government blacklisted Tornado Cash for money laundering.
Concerns grew further on April 24 following the arrest of the founder of Samourai Wallet. The cryptocurrency wallet’s CEO Keonne Rodriguez and Chief Technology Officer William Hill face money laundering conspiracy charges and conspiracy to operate an unlicensed money transfer business, respectively.
According to Joo Ki-young, founder and CEO of CryptoQuant, the arrest was labeled as an attack on the cryptocurrency privacy pioneer.
“Privacy is a core value of Bitcoin. Mixing itself is not a crime. Cryptocurrency exchanges also use mixing to protect user privacy. It’s like punishing the person who invented the knife instead of the person who uses it.”
Related: Pre-launch token trading is 20x more volatile than post-launch trading — Keyrock
