Vitalik Buterin Highlights Railgun Privacy Pools Following zkLend Security Incident

• Anyone is able to deposit funds into Railgun
• A one-hour filtering period detects potential illicit activity
• If flagged, users must withdraw back to their original address (no freezing but also no privacy benefit)

Vitalik Buterin, co-founder of Ethereum, discussed Railgun’s privacy pools mechanism on X today in light of zkLend’s security incident, where it suffered a roughly $8.5M exploit on the Starknet network.

The incident prompted Buterin to use it as an example of Railgun’s capabilities since the stolen funds were bridged to Ethereum and subsequently laundered through Railgun. However, due to protocol policies, Railgun returned the funds to their original address.

Related: Vitalik Buterin Talks Ethereum L2: What Makes It So Transparent?

Railgun’s Privacy Filters – Balancing Anonymity and Compliance

As such, he explained that anyone can deposit into Railgun, and following the deposit, a one-hour period is initiated during which algorithms analyze the transaction to identify potential links to criminal activity.

If the deposit passes the filter, the user can withdraw anonymously using ZKPs (zero-knowledge proof) after an hour or, ideally, wait longer for better anonymity.

In case the deposit fails the filter, the user can only withdraw back to their original address, meaning they don’t lose funds but then they also don’t get to benefit from anonymity.

Related: Vitalik Buterin Outlines Ethereum Future With Layer 2 Advancements

Forking for Alternative Filters – Community Governance Aspect

Buterin added that if users disagree with Railgun’s filters, anyone can fork the protocol and create an alternative privacy pool with different filtering rules. Though without widespread public adoption, a forked version would have a small anonymity set, making privacy weaker.

This is pretty interesting news as privacy protocols like Tornado Cash have been heavily scrutinized by regulators due to their role in laundering stolen funds, such as those from North Korean hackers. The US government even sanctioned Tornado Cash, arresting developers and shutting down key infrastructure.

It seems that Railgun seeks to balance privacy and compliance, allowing legal users to transact privately while making it difficult for criminals to benefit from anonymity pools. This could help privacy tools survive regulatory pressure by proving that financial privacy can coexist with crime prevention.

What is Railgun?

Railgun is a privacy-focused protocol that enables shielded transactions on Ethereum, BSC, Polygon, and Arbitrum using zero-knowledge proofs.

Launched in 2021 and with its mainnet going live in early 2022, Railgun was developed by the Railgun DAO, a decentralized autonomous organization. The project is community-driven, with contributions from cryptography and blockchain security experts.