Can a Confidentiality and Auditability Combo Boost Crypto Adoption?
Some things in life should remain private. Moments in personal relationships, personal thoughts written in a diary, and what else? Ah, yes, monetary transactions! Lack of privacy is one strong reason that significantly impedes the widespread usage and adoption of public blockchains.
Bitcoin and other such public blockchain-based cryptocurrencies were designed to be decentralized. But the way these digital asset systems achieve decentralization is through replacing a trusted center with a distributed and append-only ledger.
This as mentioned earlier imparts a serious blow to privacy by foregoing transaction confidentiality. Addresses of senders, receivers, and the amount involved in the transaction all are publicly accessible.
And as mentioned by Seres István András, in one of his articles, these publicly available blockchain addresses could be accumulated and linked to social media accounts of the parties involved in the transaction (Reddit, Twitter, etc.), email or IP addresses.
But is Full-Blown Privacy Really The Solution?
Few cryptocurrency developers took up the privacy loophole seriously in the recent past and that’s how Monero and ZCash came into being. Blockchain-based transactions became private but also anonymous. And this opened doors for money laundering and financial offenders to hoodwink financial terrorism bodies and go about their businesses.
Tracking their on-chain activity got complicated as transaction anonymity posed insurmountable roadblocks for system audibility, which is a crucial property for scenarios that require regulatory compliance and dispute arbitration guarantee.
Finding the Middle Ground Between Confidentiality and Auditability
It thus became pretty evident that transactions that are inherently confidential but not anonymous are the best way forward. Fund transfer information can remain hidden with the validity of transactions still publicly verifiable. In some cases, the participants in transactions can also choose to be open about their identities but not necessarily about the amount being transferred.
The solution? A decentralized confidential payment (DCP) system with auditability. In addition to offering transaction confidentiality, DCP supports privacy-preserving audits in which an external party can specify a set of transactions and then request the participant to prove the compliance with a large class of policies.
This way a crypto payment system can be made to garner widespread practical adoption and acceptance in the traditional finance world where auditability is a crucial aspect in monetary transactions.
One DCP based project is trying to achieve exactly that.
Making Financial Transactions ‘Pretty Good and Confidential’
According to a Cryptology Archive Report 2019/319, Yu Chen, Xuecheng Ma, Cong Tang and Man Ho Au creators of the PGC or the Pretty Good Decentralized Confidential Payment System (with Auditability) present a generic construction of auditable DCP system from integrated signature and encryption scheme and non-interactive zero-knowledge proof systems.
They then substantiate their generic construction by carefully designing the underlying building blocks, which in turn yields a standalone cryptocurrency called PGC. The digital asset’s setup is transparent and trusted, with transactions that are less than 1.3KB in size and take under 38ms to generate and 15ms to verify.
Since there is a high potential for private and anonymity-laced cryptocurrencies to be leveraged for financial crimes of any scale and magnitude, the PGC system makes it possible to keep such unlawful activities in check.
According to the project’s official website:
Unlike other confidential blockchains in which confidentiality is all-or-nothing, PGC can enforce more auditing policies such as selective disclosure. Selective disclosure allows users to prove financial transactions are correct and compliant without revealing any sensitive information. PGC‘s heavily optimized Bulletproofs have made selective disclosure practical enough for use in a decentralized public network.
Upon deeper technical examination, what appears is that at the core of the PGC cryptocurrency, is twisted ElGamal, a homomorphic public-key encryption scheme, that is not only as secure as the standard exponential ElGamal but also quite friendly to Sigma protocols and range proofs.
This in turn allows for the efficient design of zero-knowledge proofs for basic correctness of transactions as well as various application-dependent policies in a modular fashion.
PGC is an Ethereum based project, with a larger goal to establish a collaborative and symbiotic relationship with the existing global financial system. Developers are arduous in their attempts to make PGC serve the intended purpose. Will the project be well received by the team’s intended audience? That is yet to be seen.
But going back to the title, can a combination of confidentiality and auditability boost the case for widespread crypto adoption? For sure!
