Vitalik Buterin, co-founder of Ethereum, has proposed a new concept called "privacy pools" to differentiate between legal and illegal activities on the blockchain. The proposal aims to address concerns about privacy in blockchain technology, as governments have been increasing their efforts to combat criminal organizations using privacy mixers to obscure and launder their funds.

The privacy protocol Tornado Cash, a cryptocurrency mixer, has faced limitations in disassociating itself from criminal activities on the network, leading to sanctions from the US Treasury. Privacy pools hold the potential to address these limitations by providing users with transaction data privacy while concurrently separating it from any criminal activity.