"Railgun Stops $9.5M Hack: A New Era of Compliant Blockchain Privacy"

Ethereum co-founder Vitalik Buterin has praised the privacy-focused blockchain protocol Railgun for successfully preventing an attacker from laundering stolen funds through its platform. In a recent post, Buterin highlighted the potential of compliant onchain privacy mechanisms that avoid backdoors and centralized snooping while still deterring illicit activities.

Railgun, a privacy protocol built on Ethereum, utilizes zero-knowledge proofs to obscure transaction details, including the sender, recipient, and transaction amount. Unlike traditional blockchain mixers such as Tornado Cash, which have faced significant regulatory scrutiny, Railgun integrates a system called Private Proofs of Innocence, designed to block tainted funds from being anonymized within its network.

The success of Railgun’s filtering system became evident when an attacker who exploited zkLend, a money-market protocol built on Starknet, attempted to use Railgun to conceal stolen funds. The attack, which took place on Feb. 12, involved manipulating a rounding error bug in zkLend’s “lending_accumulator” feature, enabling the hacker to fraudulently withdraw 3,600 ETH—worth approximately $9.5 million at the time.

After bridging the stolen funds from Starknet to Ethereum, the attacker moved them into Railgun. However, because of the privacy protocol’s security measures, the funds were flagged, preventing them from being mixed within Railgun’s privacy pool. This left the attacker with limited laundering options, as the funds remained traceable and could not be effectively anonymized through the service.

The incident is part of a broader evolution in blockchain privacy tools, which have historically been a double-edged sword—empowering users with financial confidentiality while simultaneously raising concerns over potential misuse by bad actors. Privacy-enhancing solutions like Tornado Cash and Bitcoin Fog have faced regulatory crackdowns due to their perceived role in laundering illicit funds, leading to legal actions against developers and increased government scrutiny.

Railgun, however, presents an alternative model, balancing financial privacy with regulatory considerations. By implementing an automated screening system, the protocol aims to cater to legitimate use cases—such as confidential payroll processing and private transactions—while mitigating the risk of becoming a haven for criminal activity. Buterin, who has long advocated for privacy-preserving solutions that maintain ethical and legal safeguards, has written extensively on the concept of Privacy Pools since 20