0xbow, a provider focused on privacy-oriented infrastructure, has unveiled Privacy Pools, a groundbreaking blockchain solution that enables users to safeguard their transaction records while remaining compliant with legal standards.
In a post shared on March 31 on X, 0xbow announced the official launch on the mainnet, revealing that Ethereum (ETH) users can now enjoy on-chain privacy while steering clear of illicit funds. Privacy Pools utilize zero-knowledge proofs to facilitate private transfers of ERC-20 tokens.
Differing from traditional privacy mixers, this tool actively filters deposits to prevent the introduction of stolen or illegal funds into the system. Ethereum co-founder Vitalik Buterin contributed to the original research paper on Privacy Pools and has voiced his support for the initiative. Following the mainnet launch, he was among the first to deposit ETH into the pool.
The mechanism operates through “Association Sets,” which aggregate transactions while ensuring they are not associated with hackers, fraudsters, or other malicious entities. Should a deposit be flagged later, it can be removed without impacting the other assets in the pool.
If a user’s deposit fails the screening, they can withdraw their funds back to their original wallet using a “ragequit” option, thereby making Privacy Pools a non-custodial approach. According to 0xbow, the Privacy Pools have already processed over 21 ETH from 69 deposits. The initial cap on deposits is set at 1 ETH, with plans to increase it as the system undergoes further testing.
In recent times, privacy tools have been under regulatory scrutiny due to concerns about their potential misuse for illegal activities. A significant challenge has been finding a balance between user privacy and adherence to legal frameworks. Several nations have moved to restrict the usage of privacy coins like Monero and Zcash amid their rising association with criminal enterprises.
In a notable instance, Tornado Cash faced sanctions from the Office of Foreign Assets Control of the U.S. Treasury for allegedly aiding in illicit transactions. However, a U.S. appeals court ruled in November 2024 that these sanctions were unjust and lifted them.
The court’s decision asserted that Tornado Cash’s immutable smart contracts do not constitute “property” eligible for seizure, and the sanctions were improperly placed on a decentralized protocol. Whether 0xbow’s new approach will align with global regulatory standards remains uncertain.