Vitalik Buterin has a vision for Ethereum— and DOP delivers on it

Vitalik Buterin recently published a research paper exploring how to achieve a balance between privacy and regulatory compliance on blockchains — a way of allowing people to prove their funds are from lawful sources, without divulging their entire transaction history. Crucially, this would also separate and isolate criminal activity, tackling the concerns of law enforcement agencies.

Here at DOP, we read the paper with great interest. Why? Because our protocol aims to do exactly this: allowing users to selectively disclose their holdings — backed by a DAO that cultivates a blacklist of prohibited wallets. This is a huge change from past non-custodial solutions like Tornado Cash — now sanctioned by the U.S. government — because such tools were unable to differentiate between everyday consumers and bad actors.

In the document, Ethereum’s co-founder acknowledges the pain points of public blockchains that are transparent by design, through what initially seems like a very innocuous example. Buterin and his co-authors set the scene of Alice using a crypto wallet to pay for a meal. This allows the restaurant to know her address and scrutinize past transactions. But conversely, Alice can get an insight into the company’s revenues — and the people who have dined there before. While all of this might seem harmless at first, the stakes are much higher when it comes to transactions of a more sensitive nature.

We agree, and our protocol is designed to supercharge the Ethereum network by allowing crypto users to avoid such a scenario. DOP ensures specific transaction details can be concealed from public view, as well as the exact balances of digital assets in your wallet. Now, Alice can eat at a restaurant, safe in the knowledge that her past activity is confidential. Our protocol delivers seamless interoperability with existing dApps, adding a much-needed layer of selective transparency.

So: let’s see how the concepts put forward by Buterin match up with what DOP has to offer.

Privacy and compliance

Buterin’s proposed solution involves “privacy pools” that allow people to prove their innocence without having to trust a centralized intermediary. He envisages “membership proofs” and “exclusion proofs” that enable crypto enthusiasts to confirm the source of funds and nothing else. And a key point of his argument is this: the so-called pseudonymity offered through numerical addresses is inadequate now sophisticated analytics tools are on the rise.

Put simply, one of his proposed concepts centers on “association sets” — a mechanism where zero-knowledge cryptography enables law-abiding users to dissociate themselves with malicious actors. Buterin presents the example of five people called Alice, Bob, Carl, David and Eve — and while the first four are honest people, Eve is a thief. In the context of a blockchain, their five names will not be clear, but if Eve’s address has received funds linked to a DeFi exploit, there would be enough evidence to link her to illicit activity.

Now, things get interesting. Alice, Bob, Carl and David can create their own association set — and exclude Eve. This helps to maximize their privacy, and reduce the chance of their crypto being regarded as suspicious by merchants and exchanges. It also creates problems for Eve, whose transactions are now isolated. This effectively makes criminal transfers stick out like a sore thumb, and easier to trace, without innocent users being tarred with the same brush.

Buterin’s vision means association sets can be organized in one of two ways: either low-risk deposits can be bundled together, or high-risk deposits backed by specific evidence can be excluded.

DOP is adopting a similar approach to ensuring ethical standards — with a decentralized autonomous organization, powered by an elected and rotating committee of node operators, monitoring the platform for risks. Any user or external body can flag concerning activity — and following an investigation, appropriate action will be taken. This allows malicious actors to be isolated from law-abiding crypto investors going about their daily business.

We’re passionate about self-governance, and to incentivize committee members to do their jobs well, they will be compensated in DOP tokens. The amount will be based on a number of metrics — including how many investigations have been successfully completed. Token holders will also have a say on issues like term limits for node operators, the compensation they receive, and the voting thresholds that must be met before wallets are blacklisted. Simply put, this will be a living, breathing DAO that will evolve as quickly as the crypto landscape. This eliminates the risk of centralized points of failure emerging, while tackling threats as they arise.

Figuring out the logistics

Vitalik Buterin’s paper aligns with DOP’s thinking on this — not least because it would be impractical for users to manually pick and choose their own association sets. Instead, he envisages they’ll subscribe to so-called “association set providers” (ASPs) that handle this on their behalf, which are constructed on-chain and free of human and AI intervention.

There would be safeguards in place to prevent infiltration from malicious association sets. For example, a seven-day lag could be enforced to prevent deposits linked to bad behavior from being added. This could prevent funds from large-scale thefts or sanction lists from being mixed with clean crypto — with transaction screening services performing the necessary checks. Alternatively, real-time AI-based scoring could assess risk.

Buterin’s other proposals include charging a monthly subscription to join an association set — with verification through a proof-of-personhood token (a concept he has discussed many times before.) The Ethereum co-founder has previously raised concerns about biometric approaches like Worldcoin, but suggested that a government-issued ID or social media verification could be enough. He also argued that ASPs should attempt to emulate current Anti-Money Laundering guidelines, “where low-value payments below a certain threshold are allowed a much greater level of privacy than high-value payments.”

He also raises the risk of balance-summing attacks, which could undermine privacy mechanisms. A common scenario here is where specific transactions — for 6.4325 ETH and 1.942 ETH, for example — can be linked together. He believes “coin merging” could be a useful approach here.

DOP’s solution also helps address this — giving users the option to conceal their payment patterns or only share data with approved counterparties. As Buterin himself once said, having all transactions publicly available for literally anyone to see is too high a privacy sacrifice for many users. Our protocol is driven by a belief that you should only share as much data as you’re comfortable with — and have complete control over which parties gain access to it. We believe this level of customization will be the silver bullet for wider blockchain adoption.

Overcoming the challenges

Of course, Buterin acknowledges there could be unique challenges that arise as privacy pools become more commonly used. If malicious coins enter a large association set, innocent members may want to prove they weren’t involved, isolating the perpetrator. But if the investigation at hand is contentious, members may rally together — offering safety in numbers because the wallet responsible is among a large pool.

Overall, he believes that such a system would offer compelling incentives for honest users — balancing their desires for privacy and to avoid suspicion. But of course, he notes that the determination of whether certain deposits are bad often hinge upon societal beliefs and jurisdictions. For example, while alcohol consumption is permitted in some countries, it’s entirely prohibited in others. This could lead to localized privacy pools that comply with regulations in specific countries.

Buterin’s point is that privacy pools can offer a great degree of flexibility, and a wide range of applications. However, he cautioned against association sets being operated by centralized entities — as this could create the risk of a single point of failure emerging. Confidential details could be accessed by companies, nation states or employees. This is why Data Ownership Protocol offers a higher degree of personalization for users in a decentralized setting.

“In many cases, privacy and regulatory compliance are perceived as incompatible. This paper suggests that this does not necessarily have to be the case, if the privacy-enhancing protocol enables its users to prove certain properties regarding the origin of their funds,” Buterin wrote.

Here at DOP, we strongly agree. We’re bringing selective transparency to the Ethereum blockchain — and full compatibility with the third-party wallets that so many of us already use. Our protocol shows that zk-SNARKS and ECDSA cryptography can be used to curate the information that’s made publicly available about your on-chain activities — meaning no one needs to know exactly how much crypto is in your wallet, and where it’s been sent to or from. But crucially, this isn’t at the expense of clamping down on illicit activity, or falling afoul of regulations.

Our infrastructure aligns well with the future Buterin envisions — and we’re looking forward to being part of the solution.