Researchers use zero-knowledge to address privacy, AML concerns in stablecoins

Researchers at Etnec, a German crypto-blockchain-based payment fintech, and other organizations have proposed using zero-knowledge proofs to ensure regulatory compliance and privacy for stablecoins. They created a design that allows fiat-based stablecoins to be used like cash within limits.

The researcher’s design allows for a number of limits, such as transaction limits, balance limits, turnover limits, etc., and especially through the use of zero-knowledge proofs, anti-money laundering (AML) and counter-terrorism financing (CFT) compliance. is enabled. zk-SNARK (Zero-Knowledge Succinct Non-Interactive Argument of Knowledge). Transactions are invisible to third parties once they fall below a preset limit.

According to researchers report:

“In essence, our goal is to create a stablecoin that offers privacy guarantees similar to privacy coin Zcash and mixer Tornado Cash, but with regulatory challenges around money laundering and terrorist financing. there is no.”

In this account-based model, users create their own ZKP (no abbreviation defined, but presumably a zero-knowledge protocol) and use their unique digital ID to send proof of funds to the blockchain, where A validator validates and adds the ZKP. Transactions to the ledger. Identity may be established by governments or third parties.

Related: Into the Storm: The Dark World of Cryptocurrency Mixers

Balancing digital privacy and AML/CFT compliance is a topic currently being debated in the US and EU. The researchers say their system could be connected to the European eIDAS electronic ID system once it is complete.

In addition to etonec, another participant in the study was the San Francisco-based Mina Foundation, the operator of the Mina Protocol. In Germany he works with HauckAufhäuserLampe Bank and the Interdisciplinary Center for Security, Reliability and Trust at the University of Luxembourg. Mina claims to be the “world’s lightest blockchain” and is notable for consuming external information without an oracle.