Master Thesis
An Assessment of Regulation-Friendly Blockchain Technology
Blockchain technologies have emerged more than a decade ago as a decentralized alternative to fiat currencies. They substantially differ from their counterparts since they allow any party to join the network and validate transactions. This design has two consequences.
- First, it is inherently hard for a single entity to have a significant impact on the transaction validation and ordering. Unregulated and illegal activities can be conducted without a central referee to enforce compliance with a set of rules, such as “Know Your Customer” (KYC) and “Anti-Money Laundering” (AML).
- Second, transactions are usually conducted transparently and completely visible to anyone in order to validate them. Financial activities of honest users can thus easily be tracked and analyzed, undermining the privacy of individuals and businesses. Several new cryptocurrencies, such as ZCash and Monero, were developed to address these privacy concerns by providing enhanced privacy for users. However, this privacy introduces complications in legislative settings, as it conflicts with regulatory requirements and potentially facilitates illegal activities, including tax evasion, ransomware, and the trading of illegal goods.
Intuitively, these two properties –regulatory compliance and privacy– stand at odds with each other. Fixing regulatory issues has large consequence over the privacy of individuals, whereas ensuring privacy can make it harder to track illegal transactions. A line of work attempts to balance privacy with regulatory compliance mostly by extending privacy-preserving schemes with accountability mechanisms [1,2,3].
This thesis studies recent advancements in regulation-friendly blockchain technology. The goal is first to thoroughly understand the theoretical foundations of these cryptographic primitives. The student should then select two specific proof systems, implement them on-chain, and evaluate and compare their performance to assess how effectively they balance privacy and regulatory compliance.
References
[1] Accountable Privacy for Decentralized Anonymous Payments
[2] Balancing Privacy and Accountability in Blockchain Identity Management
[3] Blockchain Privacy and Regulatory Compliance: Towards a Practical Equilibrium