# How Decentralized Compliance Solves The Privacy Dilemma - Jakub K. | Web3Privacy Now

- Channel: [Ethereum Cypherpunk Congress](https://streameth.org/ethereum-cypherpunk-congress)
- Date: 2024-10-09
- Duration: 13:27
- Topics: web3, decentralisation, blockchain, privacy, purefi, web3privacynow
- Watch: https://streameth.org/watch/yt-BuBKfgk8evs
- YouTube: https://www.youtube.com/watch?v=BuBKfgk8evs

## Description

Web3Privacy Now | Community 1st - Rome Takeover (5/10/23) - ETHRome 2023
How Decentralized Compliance Solves The Privacy Dilemma
Jakub K. | CMO at PureFi: https://purefi.io/

Web3privacy Now is a think-and-do tank made by individuals who care about digital privacy and individual rights. Its primary objective is to explore, spotlight, and evaluate privacy-centric goods and services within the web3 domain.

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## Transcript

[Music] uh we have uh unexpected uh guest young Talent uh that is challenging compliance that protects your anonymity yakob and yakob will introduce himself and show the solution based on pter protocol and it's interesting that we here also with that solution talking a lot about the finin line between compliance and anonymity and it's interesting to hear all the voices and to see what are the tools has been built and projected with the market and how they could help uh to solve specific needs uh for maybe specific audiences or broader public thanks M so hello everyone uh I'm yakob as mol already mentioned and I'm the CMO of purify and what we are essentially so wait where's the clicker okay so uhuh so what I would like to essentially present with this speech is how it's possible to approach decentralized compliance without actually impacting the privacy or the decentralization aspect of it and therefore eliminate the malicious actors that have made this space sanctioned for example in the case of tornado cach and has shed bad light on the whole Space yeah so uh based on the statistics uh money laundering has made up a $24 billion in 2022 and which has been a 60% increase over 2021 and mixers have uh processed $8 billion out of which we can say only or like uh like like 24% which is quite a lot and uh especially like major portion of it went from Lazarus which is the South Korean uh North Korean uh hacker group and the precedent that the SEC has put and like the other us uh organization is that tornado Kish was sanctioned mainly because of the fact that they haven't been able to protect their application from malicious users and it has been used for money laundering purposes and so what I would like to essentially establish through this speech is we all know why we are here like P making privacy preserving applications mixers and other uh privacy protection Solutions is the only way how we can protect ourselves from governments and other organization that watch us all the time but there's also the Privacy dilemma that uh by essentially building these applications we also allow malicious actors including human traffickers hackers and others to launder their money and essentially make it economically feasible to do what they do and we believe that decentralized compliance that is built on the pillars of privacy and decentralization can help with in this aspect so as I said it would be amazing if all applications would be per completely permissionless and private but there's also the aspect of it that it can be exploited by Bad actors such as human traffickers hackers and others and there are multiple consequences for it so if you're a user by essentially providing liquidity you can help these actors to laer money so there's the morality aspect of it if the application gets sanctioned as for example tornado cash BS you can be potentially in problems with exchanges if if you have ever sent money there uh whenever you send money after interacting with tet okay Cas your money get Frozen and you would have to then very hardly prove the exchanges that your assets have been actually uh clean and it sheds the it shs a bad light on the whole industry uh privacy Solutions because of the fact that they are being used by malicious actors are actually not really accessible for retail users in the crypto space because they just say that uh these that they don't need it and that it only hackers use it or other similar stuff and it also decreases like trust and crypto as a whole so how we can fix this uh we believe that it can be done with decentralized compliance and there are essentially multiple ways to do that there are ways to do it completely in a privac person way and then some that have some compromise to it so there are are multiple uh companies I've highlighted only the main ones and the one of ours so there's like AML screening which essentially works by having a very big database of labeled addresses exchanges uh dark markets everything like that and then there's the decentralized ID aspect of it and by using aot screening you essentially calculate the risk score of the of the assets that are being transferred based on its history and thanks to the fact that most blockchains are public except of course the ones that are private like secret or Monero and others that have been uh speaking at this conference and we can essentially calculate the toter score on the back end without without affecting the privacy or the ux of the user in any way and the decentralized ID aspect of it which is also often referred to by verifiable credentials is a standard created by VC that allows you to go through verification once at the provider that you choose and then you can essentially communicate with the other with the different applications and reveal them information through zero knowledge proofs and therefore the application can verify that we are for example not from sanctioned country you are over 18 years old or anything else really without actually realing do information and without the application knowing anything about you and so the main Solutions here are on the AML side the list is really limited so it's our company happy and then maybe gatekeeper there are also other ways how to do that for example adhering to sh sanction lists but that only perents like main organizations like Lazarus if they would be using the same address but it doesn't really solve the issue of that when someone new hexs a protocol he isn't on the sanction list yet and therefore can interact with all the applications permissionless and under decentralized ID polygon is a major player with their polygon ID which is decentralized in a way that it integrates a lot of different providers similar to what we are doing and onology is essentially the same all of them are adhering to the same standard of verifiable credentials and what we're essentially doing at purify is that we are aggregating multiple providers both from the site of AML and uh decentralized identity so on the site of AML we have providers that most of you will not like such as chainalysis or Crystal but we're also working on like completely decentralized Solutions which I will get to in a second and the solution gets integrated directly on the the smartart layer which essentially means that if it would be integrated in tornado cache any s that be coming into the pools would have to be of a clean origin if any malicious actor would be trying to use it it would automatically block him so it's completely UN bypassable in the case of for example what uh Unis a balancer and other VC backed uh applications have been doing is that they have essentially integrated compliance checks on the front end but when it comes to malicious actors they can just interact with it over an aggregator like 1 in for example or just connect to a mirror version of it or directly interact with the smart smart conect themselves which is a problem of course because it doesn't like prevent anything so uh we have recently announced partnership with pter protocol which is a privacy solution like any other there are a mixer that that wants to become compliant so that they not sanctioned and they are open to everyone so this is essentially how it works whenever a user will be trying to deposit a transaction it will have to go through an AML uh screening if it will be over for example 80% which would mean that his assets are provably of a malicious origin the smart contract would automatically block him and otherwise he will have to due to regulatory reasons complete a ky see that consist only of a name plus email so it doesn't really reveal any sensitive information on that side as you can see on the within the purify Square we are just a protocol that Aggregates other Solutions and we are essential acting as an Open Marketplace and the issue uh what we are like what the Privacy sector may have to be scared of is the fact that theyve mik 2 which is proposed by European commission and that may come already in 2025 is that there's a possibility that they will be trying to apply the same regulations from the CI sector to defi which would essentially mean that every application that has some entity behind it Unis has Unis foundation and every single d project apart from few has some people behind them that are public therefore they would have to comply so that means AML kyc or other solutions to handle that and if we don't have decentralized solutions by then it could mean that we would have to result to solutions that are censorship uh aren censorship ship resistant and are not built on the pillars of crypto in any way and the US essentially doing the same thing they are planning to inte integrate like Bank like regulations to defi so I believe that we have to do something that will keep this space how it should be while preserving privacy and while allowing uh only truw worthy users to interact with the applications Blog the malicious actors as much as we can and what we are what we want to build so we totally uh realize the implications of having chain lyses or Crystal and other Solutions within your smart contracts uh it's a one point of failure so if one of the providers decides to add some address on The Blacklist you can't really do much outside of De integrating them so what we want to do is to create essentially decentralized data solution where all the addresses are on decentralized storage Community can govern uh what addresses to add remove based on a reputation Market reputation system and and the indexing software that essentially calculates the different Amis scour could be open source so any application including ones that are built on true privacy value so that there's no chance of one entity influencing it they can run their own indexing so and we are building it for the for the ecosystem as a whole so we would really appreciate if you would provide some feedback on this to ensure that it's suitable for both conventional D apps that are built on the pillars of decentralization but aren't really into privacy as much but also to privacy D apps and uh actually apart from Panter protocol ZK Bob which is which you may probably know who knows ZK Bob uh they have added us on the road maps to integrate and then there is other privacy mixing solution uh named Portal gate which also plans to integrate us so thank you for attention that's for me if you would have any [Applause] [Music] questions