Enabling Regulatory Compliance and Enforcement in Decentralized Anonymous Payment

Liang Xue, Dongxiao Liu, Jianbing Ni, Xiaodong Lin, Xuemin Sherman Shen

Abstract: Decentralized anonymous payment (DAP) enables users to directly transfer cryptocurrencies privately without passing through a central authority. Anonymous cryptocurrencies have been proposed to improve the privacy degree of DAP systems, such as Zerocash and Monero. However, the strong degree of privacy may cause new regulatory concerns, i.e., the anonymity of transactions can be used for illegal activities, such as money laundering. In this paper, we propose a novel DAP scheme that supports regulatory compliance and enforcement. We first introduce regulators into the system, who define regulatory policies for anonymous payment, and the policies are enforced through commitments and non-interactive zero-knowledge proofs for compostable statements. By doing so, users can prove that transactions are valid and comply with regulations. A tracing mechanism is embedded in the scheme to allow regulators to recover the real identities of users when suspicious transactions are detected. The formal security model and proof are provided to demonstrate that the proposed scheme can achieve desired security properties, and the performance evaluation shows its high efficiency.