Regulating the Web3: Aztec CEO charts future of privacy after tornado cash penalties


Zac Williamson, CEO of Aztec Network Ethereum privacy layerdiscussed what the future of Web3 privacy might look like in the wake of widely criticized US government sanctions against crypto mixer Tornado Cash.

Williamson believes that “future networks may be consistent with regulators’ goals while protecting user privacy, but will not conform to existing regulatory structures.” Regulators did the wrong thing by banning Tornado Cash, he says.

New financial renaissance

“A forward-thinking government would consider issuing base currency directly on networks like Ethereum,” Williamson said. describe in a long Twitter thread.

“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 said. he added.

He argued that under the current sanctions regime, hackers from North Korea or elsewhere will still use Tornado Cash or a clone.

“Dodgy entities will provide exit ramps for bad actors who have done the minimum required for plausible deniability, the CEO said.

Zac Williamson is a cryptographer. He claims that “many projects in this space build on my research and take inspiration from the open-source cryptographic algorithms I’ve written.”

In 2017, he co-founded Aztec Network, a layer two privacy protocol on Ethereum. The platform allows users to access a range of services in DeFi, she says, “safe from prying eyes while maintaining auditability and compliance.”

Williamson: “There is a place for regulation in Web3”

Williamson said that in the near future, privacy networks could split into four: private by default; fully decentralized; user-side compliance – users can selectively prove parts of their identity (not on a sanctions list); and open and programmable.

“Programmable privacy will create exponential growth opportunities for crypto,” he explained. “Once users can link crypto identities to cryptocurrency accounts, off-chain assets can be issued and traded on-chain without custodial intermediaries.”

He sees a future in which the privacy needs of users and the “openness” of decentralized protocols will further lead to two distinct spheres:

“Compliant networks” – applications and crypto assets “that comply with the spirit of existing regulations, but require regulatory changes to comply with the letter”.

And then “dark networks” – apps and digital currencies “that have no built-in protocol-level compliance.”

“Continuing on the path set by the Tornado Cash ban will prevent the construction of compliant networks at all, because [a] legitimate use of these networks is extinguished by fear and uncertainty,” he warned, adding:

“There is a place for regulation in Web3. It’s not at the network level. This is at the application level; companies and entities that operate Web3 to provide user and business services. for example, cryptocurrency on/off ramps and hosted wallets.

Tornado Cash sanctions an act of “self-harm”

Simply put, Web3 is the idea of ​​a decentralized internet powered by technologies of blockchain technology and the token-based economy. Non-Fungible Crypto 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, alleging the privacy tool has laundered $7 billion in crypto assets since 2019. These measures mean that all US citizens and entities are prohibited from using the mixer.

The sanctions ignored a pledge by the blender in April to block addresses blacklisted by the US Office of Foreign Assets Control.

“The banning of Tornado Cash 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 cryptonets have reduced the power of the state to enforce their rules, he said “the state can reclaim most of that power by working with bona fide web3 actors to create a new regulatory framework that recognizes that the status quo has changed.”


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