Ethereum Launches Privacy Pools for Regulatory Compliant Transactions

Ethereum has introduced a new privacy-focused tool, Privacy Pools, which allows users to conduct private transactions while ensuring compliance with regulations. The tool, developed by 0xbow.io, launched on March 31, with Ethereum co-founder Vitalik Buterin among the first to deposit on the platform. Buterin has publicly backed Privacy Pools and was one of the first users to make a deposit, transferring 1 Ether (ETH) to the platform. Over 21 ETH from 69 deposits have been made so far, according to 0xbow.io.

Privacy Pools aim to provide enhanced privacy for Ethereum users while preventing illicit activities. Users using this system can demonstrate to others that their funds are entirely isolated from any dubious sources without impairing their privacy. This is achieved through a feature called “Association Sets,” which groups transactions while screening for links to illicit actors such as hackers and scammers. Transactions placed into the pool retain dynamic status so they may be removed when they link to activities classified as illegal. The new privacy solution introduces different methods compared to Tornado Cash because authorities criticized its money laundering capabilities.

The project has received support from multiple investors, including BanklessVC, Public Works, and Number Group. 0xbow.io stated that the tool is part of a broader effort to “make privacy normal again” while ensuring regulatory compliance. One of the key features of Privacy Pools is its ability to separate legitimate transactions from illicit ones. The protocol allows users to withdraw funds while maintaining privacy without being associated with flagged addresses. If a deposit is disqualified, users have the option to use a “ragequit” function, which returns the funds to their original address.

Privacy Pools are built on zero-knowledge proofs and an “Association Set Provider” (ASP) that helps verify transactions. This ensures that only “clean” funds enter the pool while maintaining privacy for users. The system is currently available on Ethereum and Layer 2 networks like Gnosis. Privacy Pools is based on research from a 2023 white paper co-authored by Buterin, Chainalysis Chief Scientist Jacob Illum, and researchers from the University of Basel. The paper explored methods to improve blockchain privacy while ensuring regulatory compliance. The code for Privacy Pools underwent an audit by security firm Audit Wizard, which was co-founded by a former Apple engineer. 0xbow.io emphasized that the system will continue to be tested and improved over time.

The U.S. Department of the Treasury sanctioned Tornado Cash through regulatory measures in 2022, which resulted in challenges for privacy tools. A U.S. appeals court reversed the sanctions against Tornado Cash in January 2025. 0xbow.io operates on a one Ethernet per transaction basis right now but will eliminate this restriction through additional testing. The company stated Privacy Pools deliver privacy solutions which meet legal standards while ensuring user fund security.

Ethereum has launched its new Privacy Pools, a feature designed to enable private transactions while ensuring compliance with regulatory checks. The initiative marks a significant step forward in the platform's efforts to enhance user privacy and security. The Privacy Pools are designed to offer users the ability to conduct transactions privately, which is a critical feature for many users who value their financial privacy. However, the pools also include compliance checks to ensure that all transactions adhere to regulatory standards. This dual approach aims to strike a balance between user privacy and regulatory compliance, addressing one of the key challenges in the cryptocurrency space.

Users who join the Privacy Pools early are granted privileged access to future staking pools and obtain governance privileges. This early access not only incentivizes users to participate but also allows them to have a say in the platform's development and future upgrades. The governance privileges ensure that users have a stake in the platform's success and can influence its direction. The launch of Privacy Pools is part of a broader effort by Ethereum to enhance its privacy features. The platform has been working on various initiatives to improve user privacy, and the Privacy Pools represent a significant milestone in this ongoing effort. By offering a semi-permissionless privacy solution, Ethereum aims to provide users with greater control over their financial data while maintaining compliance with regulatory requirements.

The introduction of Privacy Pools is expected to have a positive impact on the Ethereum ecosystem. By enhancing user privacy and security, the platform can attract more users who value these features. Additionally, the governance privileges offered to early participants can foster a more engaged and active community, which is essential for the platform's long-term success. The launch of Privacy Pools is a testament to Ethereum's commitment to innovation and its dedication to providing users with the best possible experience.