What is the compliance privacy and the latest privacy upgrade of Ethereum, Kohaku?

Original Title: Compliance Privacy, What is Kohaku, the latest privacy upgrade on Ethereum?

Original Author: Cookie

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Reprint: Mars Finance

On November 16, Ethereum founder Vitalik showcased Kohaku, a set of privacy-first tools for the Ethereum ecosystem, at Devcon 2025 in Buenos Aires, Argentina, aimed at enhancing the privacy and security of the Ethereum ecosystem.

What exactly is Kohaku? How does it achieve privacy? Is privacy becoming increasingly important in the Ethereum ecosystem?

Ethereum in 2025 will place more emphasis on privacy and security.

As early as 2023, in the article “Three Transformations” published by Vitalik, the “Privacy Transformation” was mentioned:

“Ensure the provision of privacy-protecting fund transfer services, and ensure that all other tools being developed (social recovery, identity, reputation) have privacy protection features.”

“Without a privacy transformation, Ethereum will fail because making all transactions (including POAP, etc.) publicly viewable by anyone sacrifices too much privacy for many users, and everyone will turn to centralized solutions that can at least hide data to some extent.”

Two months after the publication of the article “Three Transformations,” Vitalik co-authored another article titled “How Privacy Pool Protocols Protect User Privacy While Meeting Compliance Requirements.” We will later introduce Kohaku, where we can see the practical achievements of Ethereum in this direction.

At the end of 2024, Vitalik published a blog post detailing his vision for the ideal crypto wallet, reiterating that “focusing on privacy and security attributes is the most valuable.”

As we enter 2025, Vitalik is increasingly mentioning privacy, and the Ethereum Foundation has also taken more actions regarding privacy. In April of this year, Vitalik released a simplified version of the Ethereum L1 privacy roadmap.

In May, he posted on social media stating, “Nordic countries are abandoning the push for a cashless society because they find the centralized implementation of this concept too fragile. It has been proven that cash as an alternative is necessary. Ethereum needs to possess sufficient resilience and privacy in order to play a trusted role in this scenario.”

On September 14, the Ethereum Foundation released an end-to-end privacy roadmap aimed at building comprehensive privacy protection for the world's second-largest blockchain. The former “Privacy and Scaling Exploration Team” has been renamed to “Ethereum Privacy Steward” (PSE), shifting its focus from speculative exploration to addressing practical issues and optimizing ecosystem outcomes.

On October 9, the Ethereum Foundation announced the establishment of a Privacy Cluster, consisting of 47 top blockchain researchers, engineers, coordinators, and cryptography experts, aimed at advancing the privacy protection features of the Ethereum network. The cluster will be coordinated by Igor Barinov, integrating the foundation's existing privacy R&D projects and promoting new privacy-related initiatives. On the same day, Vitalik shared the Kohaku roadmap, stating that full-stack privacy and security are top priorities for Ethereum.

On October 10th, the Ethereum Foundation's funding coordination team launched a new financing mechanism in collaboration with Keyring Network to support privacy developers.

The latest development we saw at Devcon is the live demonstration of Kohaku. It is worth mentioning that in a year where Ethereum is increasingly focused on promoting privacy and security, the token that might benefit the most is Railgun($RAIL), which just set a new historical high of 5 dollars earlier this month, nearly 10 times the lowest point in April of this year.

What is Kohaku?

Kohaku is an open-source project aimed at enhancing on-chain privacy and security. It provides a modular framework that allows developers to build secure, privacy-focused wallets without relying on centralized third-party institutions.

On Kohaku's official Github page, the documentation mentions three privacy-protecting liquidity pool protocols: Railgun, Privacy Pools (in development), and Tornado (in development). These protocols enable users to securely hide their funds.

Kohaku may be the largest privacy upgrade plan on Ethereum to date. To better understand its workflow intuitively, we quote the workflow diagram of Kohaku drawn by @iamjosephyoung:

• Assume Bob has a regular address (0xABC…), he creates a concealed key pair associated with that address.

• Based on this key pair, Alice derives a completely random and one-time stealth address, and transfers 1000 USD to that address.

• Bob scans the network to check if the address corresponding to his hidden key pair has received any funds.

• Bob spends or receives 1000 dollars, the one-time address expires and is no longer used.

In summary, Kohaku creates a temporary concealed address using the user's public key, allowing you to perform private operations without exposing the association with the main wallet. The concealed address is a privacy solution proposed by Vitalik (ERC-5564 standard), which allows the sender to generate a unique, one-time address for the receiver. This type of address is designed for a single transaction and will not be reused afterward, preventing the transaction from being traced back to the user's identity. People can only see that Alice sent money to this address, but cannot know that Bob is behind this address, while Bob can directly control the assets within this address using his own key.

Unlike Tornado Cash, which is a coin mixing pool shared by all users, Kohaku does not rely on mixing coins with other users at all. It complies with regulatory requirements because Bob can selectively disclose the complete transaction history as needed.

Railgun even has a decentralized malicious transaction prevention system called “Private Proofs of Innocence”, which only uses publicly available malicious address sets from the blockchain. This system can prove the safety of fund sources without compromising user privacy, thereby preventing users from receiving illegal funds.

At the Devcon venue, Privacy Pools(@0xprivacypools) conducted a live transfer demonstration of this feature.

Kohaku not only caters to the trend of Compliance without compromising auditability but also addresses the demand for privacy. In the long run, this could provide a perfect option for institutions for large fund transfers on the chain.