Paper 2016/061

Accountable Privacy for Decentralized Anonymous Payments

Christina Garman, Matthew Green, and Ian Miers

Abstract

Decentralized ledger-based currencies such as Bitcoin provide a means to construct payment systems without requiring a trusted bank. Removing this trust assumption comes at the significant cost of transaction privacy. A number of academic works have sought to improve the privacy offered by ledger-based currencies using anonymous electronic cash (e-cash) techniques. Unfortunately, this strong degree of privacy creates new regulatory concerns, since the new private transactions cannot be subject to the same controls used to prevent individuals from conducting illegal transactions such as money laundering. We propose an initial approach to addressing this issue by adding privacy preserving policy-enforcement mechanisms that guarantee regulatory compliance, allow selective user tracing, and admit tracing of tainted coins (e.g., ransom payments). To accomplish this new functionality we also provide improved definitions for Zerocash and, of independent interest, an efficient construction for simulation sound zk-SNARKs.