A privacy and compliance in regulated anonymous payment system based on blockchain

Abstract

Decentralized Anonymous Payment Systems (DAP), often known as cryptocurrencies, stand out as some of the most innovative and successful applications on the blockchain. These systems have garnered significant attention in the financial industry due to their highly secure and reliable features. Regrettably, the DAP system can be exploited to fund illegal activities such as drug dealing and terrorism. Therefore, governments are increasingly worried about the illicit use of DAP systems, which poses a critical threat to their security. This paper proposes Privacy and Compliance in Regulated Anonymous Payment System Based on Blockchain (PCRAP), which provides government supervision and enforces regulations over transactions without sacrificing the essential idea of the blockchain, that is, without surrendering transaction privacy or anonymity of the participants. The key characteristic of the proposed scheme is using a ring signature and stealth address to ensure the anonymity of both the sender and receiver of the transaction. Moreover, a Merkle Tree is used to guarantee government supervision and enforce regulations. Our proposed scheme satisfies most of the stringent security requirements and complies with the standards of secure payment systems. Additionally, while our work supports government regulations and supervision, it guarantees unconditional anonymity for users. Furthermore, the performance analysis demonstrates that our suggested scheme still remains applicable and effective even when achieving complete anonymity.