Zac Williamson, CEO of the Aztec network Ethereum privacy leveldiscussed what the future of Web3’s privacy might look like in the wake of widely criticized US government sanctions against the Tornado Cash cryptocurrency mixer.
Williamson believes that “future networks may be consistent with the goals of regulators while protecting user privacy, but they will not comply with existing regulatory structures.” Regulators have done the wrong thing by banning Tornado Cash, she says.
New financial renaissance
“A forward-looking government would consider issuing core funds directly on networks like Ethereum,” Williamson outlined in a long discussion on Twitter.
“When coupled with hyper-fungible real-world assets, private self-custody and low barriers to entry from open networks, we would see the dawn of a new financial renaissance,” he added.
He said that under the current sanctions regime, hackers from North Korea or elsewhere will continue to use Tornado Cash or a clone.
“Questionable entities will provide exit ramps to bad actors who have done the minimum required for plausible denial,” the CEO said.
Zac Williamson is a cryptographer. He states that “many projects in this space are based on my research and draw on the open source cryptographic algorithms I have written”.
In 2017 he co-founded Aztec Network, a level two privacy protocol on Ethereum. The platform allows users to access a range of services in DeFi, she says, “out of prying eyes while maintaining verifiability and compliance.”
Williamson: “There is room for regulation in Web3”
Williamson said that privacy networks could split into four in the near future: private by default; completely decentralized; user-side compliance: users can selectively prove parts of their identity (not in a sanction list); and open and programmable.
“Programmable privacy will create exponential growth opportunities for cryptocurrencies,” he explained. “Once users can link encrypted identities to cryptocurrency accounts, off-chain assets can be issued and traded on-chain without custodial intermediaries.”
He sees a future where user privacy needs and the “openness” of decentralized protocols will further lead to two distinct spheres:
‘Compliant networks’: cryptographic applications and assets “that comply with the spirit of existing regulations, but need regulatory changes to comply with the letter.”
And then the “dark networks” – apps and digital currencies “that have no built-in protocol compliance.”
“Continuing the path set by the Tornado Cash ban will prevent the construction of compliant networks [a] the legitimate use of these networks is extinguished by fear and uncertainty “, he warned, adding:
“There is a place for regulation in Web3. It is not at the network level. It is at the application level; companies and organizations that use Web3 to provide services to users and companies. eg. cryptocurrency activation / deactivation ramps and hosted wallets.
Tornado Cash sanctions the act of ‘self-harm’
Put simply, Web3 is the idea of a decentralized internet powered by the technologies of blockchain technology and the token-based economy. Non-fungible cryptographic tokens (NFTs) are expected to play a key role in Web3 as a medium of exchange.
The US Treasury Department sanctioned Tornado Cash on August 8, claiming the privacy tool has laundered $ 7 billion worth of crypto assets since 2019. The measures mean that to all US citizens and entities it is forbidden to use the mixer.
The sanctions ignored the mixer’s pledge in April to block addresses blacklisted by the US Office of Foreign Assets Control.
“The Tornado Cash ban will be seen as an act of self-harm that has prevented the United States from reaping the wealth and job creation produced by this revolutionary industry,” Williamson said.
While decentralized crypto networks have reduced the state’s power to enforce its rules, he said “the state can reclaim most of this power by working with bona fide actors in the Web3 to create a new regulatory framework that recognizes that the status quo has changed. “
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