REGULATIONDEVELOPMENT

Privacy race encounters key dilemma? Vitalik's investment in Nocturne v1 concludes for this reason

share
Privacy race encounters key dilemma? Vitalik

On 2/23, the team behind "Nocturne v1," which Ethereum co-founder Vitalik Buterin has invested in, has decided to end their current project. Let's delve into the reasons behind this strategic shift, upcoming innovations, and what this means for existing "Nocturne v1" users.

Nocturne Labs to enable Stealth Address, an anonymous transaction protocol even Vitalik has invested in.

The Vision Behind Nocturne

The birth of Nocturne was to realize a grand vision: to break through the limits of abstract account abstractions (AA) and make the world of cryptocurrencies more accessible. Nocturne focuses on creating privacy at the account level, addressing the most challenging yet innovative aspects of the crypto space.

The Shift in Priorities in the Crypto Space

Over the past year, the Nocturne team has gained insights.

They realized that the shift to layer-two solutions (L2) and advanced AA development must come before privacy initiatives.

Why? Because users care about costs and user experience. Additionally, the timing of integrating privacy features depends on the overall utility of cryptocurrencies. Essentially, overcoming these major obstacles is crucial before delving into privacy issues.

The Next Steps for Nocturne

The Nocturne team stated that with the evolving landscape, privacy needs will undoubtedly resurface.

However, currently, the Nocturne team is focusing their talents on addressing real-time technical and user-centric challenges. The product will be unveiled in the coming months.

The Transition Plan for Nocturne v1 Users

For the existing Nocturne v1 community, which has over $500,000 in total value locked (TVL) and a monthly trading volume of $2 million, as Nocturne transitions, deposits, exchanges, and staking have been suspended, and users can withdraw funds within the next year.

Privacy Track Encounters Critical Challenges?

Researcher Haotian analyzed the key reasons for the challenges faced by Nocturne v1:

  1. In the context where mainstream society still struggles to rationally accept "decentralized products" such as public chains, wallets, decentralized exchanges, etc., adding a layer of "privacy" to decentralization could become a compliance and scrutiny hotspot. Privacy projects may be seen as accomplices to illegal activities such as terrorism financing and money laundering, attracting "special attention," especially in countries with strong regulatory oversight. The probability of the team succumbing to pressure and giving up is high.
  2. Currently, privacy projects build an independent "black box" environment where users can transfer assets into the black box, and then use Stealth addresses within the black box, along with Commitment Trees, ZK, etc., for token obfuscation. Typically, the larger the black box pool and the more users it has, the more mature the privacy construction conditions, but the usual way these solutions handle compliance issues is through methods such as blacklisting and proof of innocence. This easily solves the deposit issue, but if there is any association with illicit funds after withdrawal, it would lead to significant trouble.
  3. To achieve a switch in the asset trading environment at the underlying level, common privacy solutions involve building a privacy trading mechanism where users must first deposit into a privacy environment before completing a series of subsequent operations. This places the platform in the position of having to tackle the technical challenges of screening all potentially illegal transactions while also facing the operational pressure of slow user growth and difficulty in expanding the fund pool. Not only must they ensure no mistakes are made that could be scrutinized by regulators, but they also have to explain to users the platform's fairness and resistance to scrutiny. At this stage, the latter will be even more challenging.