The realm of cryptocurrency has always been a double-edged sword, offering financial freedom and privacy to users while simultaneously raising concerns about illicit activities and regulatory compliance. In the ongoing quest for equilibrium between anonymity and accountability, top Ethereum researchers have unveiled a groundbreaking concept through Privacy Pools, an open-source fork of the cryptocurrency mixer Tornado Cash. This concept, based on zero-knowledge proofs (ZK-proofs or ZKPs), promises to redefine the landscape of privacy and regulation within the Ethereum ecosystem.
Meanwhile, the cryptocurrency price tracking website CoinStats indicated that ETH's price experienced a minor setback over the past 24 hours. This dip in daily performance also had an impact on ETH's weekly performance, pushing it deeper into the red zone.
From a technical standpoint, it is apparent that the cryptocurrency had been navigating through key indicators. On the daily chart, ETH made an attempt to break above the 9-day Exponential Moving Average (EMA) line earlier in the current trading session. This attempt followed a successful breach of the short-term momentum indicator during the previous day's trading session. However, it fell short of closing yesterday's trading session above the EMA line.
The Need for Balance
Cryptocurrencies like Ethereum have revolutionized the financial world by providing users with unprecedented levels of privacy. However, this privacy has also been exploited by malicious actors engaged in illegal activities such as money laundering, tax evasion, and illicit trade. Regulators worldwide have grappled with the challenge of monitoring and regulating these decentralized networks without compromising the privacy and security of legitimate users.
Privacy Pools: A Novel Solution
Privacy Pools emerged as a pioneering solution to this conundrum. Led by Ethereum founder Vitalik Buterin, Privacy Pools' Ameen Soleimani, Chainanalysis' Jacob Illum, and Uni Basel researchers Matthias Nadler and Fabian Schär, the team introduced a novel approach in their paper titled "Blockchain Privacy and Regulatory Compliance: Towards a Practical Equilibrium."
The central idea behind Privacy Pools is the utilization of zero-knowledge proofs to create a "separating equilibrium" between honest and dishonest users within Ethereum-based networks. This concept could potentially mark a watershed moment in achieving a practical balance between user privacy and regulatory compliance.
Understanding Zero-Knowledge Proofs
Zero-knowledge proofs are cryptographic techniques that allow one party (the prover) to prove to another party (the verifier) that a statement is true without revealing any information about the statement itself. In the context of Privacy Pools, users can employ ZK-proofs to confirm that their cryptocurrency funds have not originated from illegal sources without disclosing the details of their transactions.
Privacy Pools in Action
The mechanism employed by Privacy Pools relies on ZK-proofs to establish membership proofs and exclusion proofs. Membership proofs enable users to demonstrate that their withdrawals stem from legitimate deposits, ensuring that their funds are not associated with illicit activities. Conversely, exclusion proofs allow users to prove that their withdrawals are not linked to suspicious deposits.
However, it is important to note that in some implementations, this mechanism may inadvertently reveal more information about the transactions under scrutiny. Consequently, striking a balance between privacy and compliance remains an ongoing challenge.
Enhancing Regulatory Compliance
One of the most promising aspects of Privacy Pools is its potential to enhance regulatory compliance within Ethereum-based decentralized applications (dApps). This technology can be integrated into various platforms, including decentralized exchanges (DEXes) and lending protocols, to help maintain a transparent and accountable financial ecosystem.
Collaboration with Law Enforcement
The collaboration between developers and law enforcement agencies could be a game-changer in the realm of cryptocurrency regulation. By incorporating Privacy Pools' technology, regulators and investigators can gain valuable insights into the flow of funds within the Ethereum network without compromising the privacy of law-abiding users. This collaborative approach can significantly advance the effectiveness of regulatory efforts.
User Empowerment
Privacy Pools also empowers honest users by allowing them to dissociate themselves from third-party deposits that may be linked to illicit activities. This newfound ability enables users to confidently use their funds in a regulated environment, free from concerns about inadvertently engaging in illegal transactions.
Blacklists and Regulatory Oversight
Despite these advancements, regulators will still play a crucial role in shaping the regulatory landscape. They will need to create and maintain "blacklists" of addresses associated with illicit activities, specific to their jurisdiction. Privacy Pools can aid in this process by providing regulators with valuable data to identify and track suspicious addresses.
Challenges and Future Directions
While Privacy Pools present a promising path towards a practical equilibrium, challenges remain. Striking the right balance between privacy and compliance without unintentionally revealing sensitive transaction details is a complex task that requires ongoing refinement.
Moreover, international coordination among regulators will be essential to create unified guidelines for addressing cross-border cryptocurrency transactions. Privacy Pools' potential can only be fully realized when it is integrated into a comprehensive regulatory framework that ensures consistency and fairness across jurisdictions.
Price Overview
Meanwhile, the cryptocurrency price tracking website CoinStats indicated that ETH’s price had slipped 0.03% over the past 24 hours. This negative daily performance had also pushed ETH’s weekly performance further into negative territory - bringing it down to -4.18% at press time. Subsequently, the leading altcoin was changing hands at $1,632.89.
Price chart for ETH (Source: CoinStats)
ETH was, however, able to reach a daily high of $1,651.11, but had since retraced to its current price. Nevertheless, the cryptocurrency was still trading slightly closer to its 24-hour high than its low for the same period at $1,614.54. Furthermore, ETH also outperformed Bitcoin (BTC) throughout the past day of trading, and had gained 0.03% against the market leader. Subsequently, 1 ETH token was estimated to be worth 0.0634258 BTC.
Technical Overview
Daily chart for ETH/USDT (Source: TradingView)
From a technical standpoint, ETH’s price had attempted to break above the 9 EMA line on its daily chart earlier in today’s trading session. This was after it was able to successfully break above the short-term momentum indicator during yesterday’s trading session. It was, however, unable to close yesterday’s trading session above the EMA line.
If ETH’s price is able to close today’s daily candle above the 9-day EMA at around $1,642.76, then it may proceed to climb in the next 48-72 hours. During this period, the cryptocurrency may attempt to flip the $1,690 resistance level into support. If ETH is able to close a daily candle above this key threshold, then a path will open up for it to rise to the subsequent key resistance level at $1,775 over the following week.
On the other hand, if ETH is unable to close today’s trading session above the 9-day EMA line, then traders and investors may grow impatient and reduce their positioning in the altcoin. This potential sell pressure may lead to ETH’s price retesting the $1,580.96 support level in the following couple of days.
Meanwhile, investors and traders will want to take note of the fact that a notable bearish technical flag was on the verge of being triggered on ETH’s daily chart. At press time, the daily RSI line was attempting to cross below the daily RSI SMA line. Should these two technical indicators cross in the next 24 hours, it will signal that sellers have the upper hand. Therefore, the bearish thesis may be more likely to play out in the short-term.
Disclaimer: Coinpaper does not recommend that any cryptocurrency should be bought, sold, or held by you. Always conduct your own research and consult your financial advisor before investing in any digital asset.
