Paper 2025/1524

AUPCH: Auditable Unlinkable Payment Channel Hubs

Abstract

Cryptocurrencies, which have gained significant adoption in recent years, face ongoing challenges in scalability and privacy. Payment Channel Hubs (PCHs) constitute a solution to both issues by shifting transactions off the public ledger. Various PCH constructions have been proposed, offering different degrees of unlinkability, efficiency, and inter- operability. However, regulatory compliance remains a significant con- cern, particularly under emerging frameworks like the EU’s Markets in Crypto-Assets (MiCA) regulation and FATF Travel Rule requirements. This work addresses a gap in existing PCH constructions: the lack of regulatory-compliant auditability mechanisms. While concurrent work AuditPCH attempts to address this challenge, it suffers from fundamen- tal limitations, including reliance on channel closures for auditing, vul- nerability to unilateral de-anonymization by the hub, and lack of formal security guarantees for the auditing process. Our approach fundamen- tally differs by providing targeted, non-disruptive auditability that al- lows auditability for high-risk payments while preserving unlinkability for the rest. To achieve this, we present Verifiable Linkable Randomiz- able Puzzles (VLRP), a new cryptographic primitive that enables a party to commit to a secret using two distinct keys: a verifiability key (VK) and an auditability key (AK). This primitive provides (i) verifiability that the owner of the VK issued the commitment, (ii) the ability to ran- domize the commitment to ensure unlinkability, even for the owner of the VK, while still allowing traceability using the AK, and (iii) collaborative auditing that prevents unilateral de-anonymization. We then present Auditable Unlinkable Payment Channel Hubs, AUPCH, a PCH built on VLRP that offers auditability guarantees with stronger se- curity guarantees than existing approaches. AUPCH provides modular integration with existing PCH frameworks (A2L, BlindHub), operates without requiring channel closures, and ensures that auditing requires collaboration between hub and auditing agent, preventing abuse by ei- ther party alone. Crucially, our approach acts as a wrapper around exist- ing PCH implementations, requiring only replacing randomizable puzzle calls with VLRP calls, a minimal change that dramatically reduces de- ployment complexity compared to building new systems from scratch.