0xbow launches Privacy Pools for legal on-chain privacy

Privacy-focused infrastructure provider 0xbow has launched Privacy Pools, a new blockchain tool that lets users protect their transaction history while attempting to follow the law.

On a Mar. 31 post on X, 0xbow announced the mainnet launch, stating that Ethereum (ETH) users can now achieve on-chain privacy while avoiding illicit funds. Privacy Pools use zero-knowledge proofs to enable private ERC-20 token transfers.

Unlike earlier privacy mixers, this tool screens deposits to prevent stolen or illicit funds from entering the system. Ethereum co-founder Vitalik Buterin is one of the co-authors of the initial Privacy Pools research paper and has publicly supported the project. Following the mainnet launch, Buterin was among the first to deposit ETH into the pool.

The system works through “Association Sets,” which batch transactions while verifying they aren’t linked to hackers, scammers, or other bad actors. If a deposit is later flagged, it can be removed without affecting others in the pool.

If a user’s deposit doesn’t pass the screening process, they can withdraw their funds back to their original wallet through a “ragequit” function, making Privacy Pools a non-custodial solution. According to 0xbow, Privacy Pools had already processed more than 21 ETH from 69 deposits. The initial deposit cap is set at 1 ETH. However, as the system is tested further, the cap will be raised. 

In recent years, privacy tools have faced regulatory pressure due to concerns over illegal use. A major obstacle has been striking a balance between user privacy and legal compliance. Several countries have taken action to limit the use of privacy coins like Monero and Zcash due to their growing use in criminal activity.

In the most well-known case, Tornado Cash was sanctioned by the Office of Foreign Assets Control of the U.S. Treasury for allegedly facilitating illicit transactions. However, a U.S. appeals court ruled in November 2024 that the sanctions were unlawful and reversed them.

According to the court’s ruling, Tornado Cash’s immutable smart contracts do not qualify as “property” that can be seized, and the penalties were unfairly imposed on a decentralized protocol. Whether 0xbow’s new strategy will meet global regulatory requirements is still unknown.