A New Privacy Protocol for EVM-based Blockchains: Part 1 — The Problem Statement

A new paper named “Blockchain Privacy and Regulatory Compliance: Towards a Practical Equilibrium” was recently published by some well-known members of the Blockchain community. Notably among them is Vitalik Buterin, the founder of Ethereum and the Ethereum Foundation.

The protocol proposes a new way of providing privacy on Ethereum on-chain transactions while the users can keep their identity safe while keeping the protocol compliant with the regulations. In this piece, I aim to unpack the essence of their proposal by delving into the paper’s details and the framework they’ve designed.

Understanding Privacy in Blockchain Networks

To be able to fully grasp the significance of new privacy protocols, we first need a foundational understanding of privacy features within blockchain networks. At its core, blockchains operate on a principle of pseudo-anonymity.

What is Pseudo-Anonymity?:

In layman’s terms, while every transaction and wallet address is open to scrutiny and visible to all, they don’t directly correspond to the real-world identities of users.

This means that, in the context of blockchains, pseudo-anonymity means that while transactions and wallet addresses are transparent and visible to anyone, they aren’t directly linked to personal identities.