The history of financial privacy has followed a very peculiar path. Throughout history, information about how much wealth one possessed and in what form has always been highly sensitive and kept private. There has never been an era when governments or those in power had extensive knowledge of citizens’ assets. In that sense, the current era can be considered an anomaly. Most assets have been digitized, and a single enormous power can now track the assets of citizens across national borders. We must adopt a more macro perspective on this unprecedented historical situation.
We must realize this financial privacy as quickly as possible in a way that as many people as possible can agree upon. To achieve this, we need to swiftly establish privacy for citizens in a way that clearly aligns with and adheres to current laws and regulations, and, as such, identifies and discourages criminal activity. If we cannot create privacy in this era, the next opportunity may not come for a very long time. How can we provide a privacy protocol that is unfriendly to criminals? At Intmax, careful and multilayered measures are taken in at least four ways.
- Chain Analysis
The first is the decentralized utilization of chain analysis tools. Chain analysis tools can basically be viewed as a special method of operating full nodes, and this can be used to reach consensus among multiple nodes and impose restrictions on deposits. Incorporating decentralized chain analysis tools like Aethos provides fairer restrictions. This means introducing permissions at the gateway for deposits from Layer 1 to Intmax Layer 2, but of course, it does not affect the permissionless nature within Layer 2.
1) Advanced Risk Monitoring: Chain Analysis tools leverage TRM’s Risk Engine, a sophisticated tool that enables us to monitor over 150 configurable risk scenarios. This allows us to identify potential risks associated with our digital asset transactions and interactions, ensuring we remain vigilant against illicit activities.
2) Customizable Risk Categories: The Risk Engine provides us with access to detailed risk categories derived from regulatory guidance and insights from law enforcement. We can tailor these categories to our specific operational needs, ensuring that we maintain a granular view of potential risks.
3) Proactive Risk Management: By categorizing risks into Ownership, Counterparty, and Indirect types, we are able to effectively manage exposure. This proactive approach helps us identify and address potential issues before they impact the users.
4) Continuous Compliance: We are committed to adhering to regulatory requirements and best practices. Our partnership with TRM Labs equips us with the tools necessary to stay compliant with evolving regulations, safeguarding our reputation and the trust of our clients.
5) Enhanced Incident Response: The insights gained from TRM’s Indirect Exposure Engine allow us to trace connections between transactions and potential risks,
enabling swift action to mitigate any identified threats.
6) Risk Categories: Developed from regulatory guidance and insights from law enforcement, financial institutions, and compliance experts. Categories focus on illicit finance risks pertinent to the crypto industry, aligning with FATF recommendations on money laundering.
Categories include:
Sanction list, incl. OFAC, Human Trafficking, CSAM Vendor/Consumer, Terrorist Financing, Blocklisted, Carding, Cybercrime Services, Darknet Market, Banned/Controlled Substances, Counterfeit Good, Piracy, High-Risk dApp, High-Risk Exchange, Hacked/Exploited Funds, Known Hacker Group, Violent Extremism, Escort Service, Malware, Scam, Extortion, Mixer.
By utilizing TRM Labs’ cutting-edge technology and expertise, we are reinforcing our dedication to creating a secure and compliant environment for our users. We believe that these measures not only protect but also foster a safe ecosystem for all participants in the digital asset space.
2. IP Block:
IP blocking is a critical security measure implemented at the software level to enhance compliance and protect the Intmax network from potentially illicit activities. This feature focuses on identifying and blocking access from IP addresses associated with sanctioned entities or jurisdictions.
- When a user attempts to connect to the Intmax network from a sanctioned IP address, the system automatically denies access.
- This blocking occurs at the gateway level, preventing any transactions or interactions that may pose a regulatory risk.
3. AML using ZKP (Zero-Knowledge Proof) “Proof of Innocence.”
With the implementation of (ZKP) technology, specifically through a “Proof of Innocence” framework, users have the flexibility to select their Anonymity Set, which serves as the input for the ZKP circuit. This capability enables users to demonstrate that their deposit source is either “one of these innocent addresses” or “not among these suspicious addresses.” By using ZKP, users can prove their compliance without revealing any sensitive information about their financial transactions.
This methodology is aligned with concepts introduced in the “Privacy Pools” framework proposed in 2023 by notable figures such as Vitalik Buterin and Ameen Soleimani, along with researchers from ChainAnalysis. By allowing users to prove their association with verified, compliant addresses while keeping their transaction details private, this system effectively enhances the integrity of the Intmax network.
The ZKP-based “Proof of Innocence” not only bolsters AML efforts by enabling scrutiny of transaction sources but also promotes user privacy, striking a balance between regulatory compliance and individual confidentiality. This dual focus helps protect the network from illicit activities while fostering a trustful environment for legitimate users.
4. Limiting the deposit amount
This is very simple but effective. When creating privacy among citizens, there isn’t much need to provide means to easily conceal very large amounts, such as $100M. This deposit limit will be dynamically adjusted based on protocol decisions, but it will always serve as an effective barrier governing the protocol.
Intmax’s protocol creates a new era of privacy in the crypto space. Combined with our pursuit of scaling technology, it offers privacy that is inexpensive, stable, and minimizes social friction during the transition period.