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Achieving Crypto Privacy and Regulatory Compliance
Summary
The article discusses the need for privacy-protecting regulatory solutions using zero-knowledge proofs in order to achieve both consumer privacy and reduce the risk of illicit finance. It outlines three possible approaches that could be used: deposit screening, withdrawal screening, and selective de-anonymization.
Q&As
What are the two goals of developing and regulating web3?
The two goals of developing and regulating web3 are preserving consumer privacy and reducing the risk of illicit finance.
How can blockchains support private transactions?
Blockchains can support private transactions by using zero-knowledge proofs.
What is a zero-knowledge proof?
A zero-knowledge proof is a way for one party, called a “prover,” to convince another party, a “verifier,” that a certain statement is true, while revealing nothing about the underlying data that makes the statement true.
What is deposit screening?
Deposit screening is a way to prevent deposits of assets coming from sanctioned entities connected with exploits, hacks, or certain other illicit activity.
What is withdrawal screening?
Withdrawal screening is similar to deposit screening, except instead of checking the wallets of inbound funds against blocklists, the cross-referencing happens just before withdrawal.
AI Comments
👍 This is a well-thought-out and comprehensive article on the challenges associated with achieving both privacy and regulatory compliance in the crypto space. The authors make a strong case for the need for more effective controls to prevent abuse, while preserving privacy for legitimate users.
👎 The article fails to address the inherent contradiction between the need for privacy and the need for regulatory compliance. It also glosses over the challenges associated with implementing effective controls, which are likely to be costly and complex.
AI Discussion
Me: The article is about how the development and regulation of web3 needs to achieve two goals that are often in tension: preserving consumer privacy and reducing the risk of illicit finance.
Friend: That makes sense. So what are the implications of the article?
Me: The article discusses how zero knowledge proofs could be used to reconcile consumer privacy and regulatory compliance. The article also discusses how deposit screening, withdrawal screening, and selective de-anonymization could be used to prevent the abuse of privacy-preserving protocols.
Action items
- Download the full paper.
- Read the text of the paper.
- Understand the implications of the paper.
Technical terms
- Web3
- an evolution of the internet powered by crypto
- Zero-knowledge proof
- a way for one party, called a “prover,” to convince another party, a “verifier,” that a certain statement is true, while revealing nothing about the underlying data that makes the statement true
- Deposit screening
- checking wallets that are attempting to deposit funds against blocklists and allowlists
- Withdrawal screening
- checking wallets that are attempting to withdraw funds against blocklists and allowlists
- Selective de-anonymization
- a feature that would provide federal regulators or law enforcement access to transaction details
- Blocklist
- a list of wallets that are blocked from depositing or withdrawing funds
- Allowlist
- a list of wallets that are allowed to deposit or withdraw funds
- Key escrow
- the process of storing and managing cryptographic keys