As financial technology matures and cryptocurrencies become increasingly popular, the security of blockchains used to process these transactions has emerged as a significant concern. Prof. Allen Men Ho AU, Associate Head (Research and Development) and Professor of the Department of Computing at The Hong Kong Polytechnic University, has introduced the Regulatable Privacy-Preserving Smart Contracts (RPSC), a smart contract system that effectively balances privacy with public transparency. RPSC’s compatibility has been demonstrated on Ethereum smart contract.
Smart contracts have become the backbone of decentralised finance, enabling automated transactions and the development of complex applications on blockchain platforms. As the technological foundation of Web3.0, smart contracts are increasingly relied upon to facilitate a wide range of financial and governance activities.
However, the transparency that makes blockchain technology so powerful also introduces significant privacy challenges. Every transaction and contract execution are recorded on a public ledger, exposing sensitive user data and transactional details to anyone with access to the network.
The tension between privacy and regulation has emerged as a central issue in blockchain research. Early privacy-preserving solutions, such as Zerocash and Hawk, leveraged advanced cryptographic techniques to anonymise transactions and user identities. These approaches, while effective in protecting privacy, often lacked the flexibility to selectively reveal private data when required for regulatory compliance or dispute resolution.
Ethereum, with its account-based structure, has become the dominant platform for smart contracts, hosting the majority of decentralised applications and managing billions in transaction value annually. Yet, the absence of robust privacy solutions tailored to account-based blockchains has left a critical gap in the ecosystem.
Led by Prof. AU, his research team has introduced RPSC system, a novel framework that combines fine-grained privacy controls, regulatory traceability and full compatibility with account-based blockchains, to address the above-mentioned problems.
The design of RPSC is rooted in a sophisticated system model that brings together three principal entities: users, regulators and the blockchain itself. Users are the primary participants, each equipped with a unique public-private key pair. Their public keys serve as identifiers within the system, while private keys enable the generation of privacy-preserving transactions. Depending on the application context, users may assume specialised roles, such as voters in an electronic voting system or bidders in an auction.
Regulators, typically government agencies or designated authorities, are granted the ability to view private data and trace transactions when necessary, using their own cryptographic key pairs. Importantly, regulators are restricted to observational and investigative functions. They cannot alter data on the blockchain. The blockchain, in turn, acts as a transparent, append-only ledger, hosting smart contracts that execute autonomously upon user interaction.
Central to the RPSC system is the introduction of a multi-layer record commitment structure, which enables fine-grained privacy protection and flexible data state transitions. This multi-layer approach allows users to selectively disclose private data by replacing commitment values with actual data when necessary. For instance, in the event of a dispute or regulatory investigation, a user can reveal specific transaction details without compromising the privacy of unrelated data.
The construction of a transaction within RPSC is both rigorous and flexible. Each transaction consumes existing records and generates new ones, with the process governed by cryptographic protocols to ensure privacy and correctness.
To meet the regulatory traceability requirements, RPSC integrates public-key encryption and zero-knowledge proofs, specifically zk-SNARKs (Zero-Knowledge Succinct Non-Interactive Arguments of Knowledge). Users encrypt transaction details using the regulator's public key, ensuring that only authorised entities can decrypt and access sensitive information. Zero-knowledge proofs are employed to verify the correctness of transactions without revealing underlying data, thereby maintaining both confidentiality and integrity.
Transaction regulation in RPSC is achieved through a two-layer encryption mechanism. When a user initiates a transaction, a copy of the private transaction data is encrypted using the regulator's public key. This allows the regulator, and only the regulator, to decrypt and access the detailed data for oversight purposes.
The RPSC system represents a significant advancement in the design of privacy-preserving smart contracts for account-based blockchains. By combining multi-layer commitments, zero-knowledge proofs and regulatory traceability, RPSC offers a balanced solution that addresses the needs of privacy, programmability and accountability in decentralised applications. The system’s ability to reconcile the demands of privacy and regulation, without sacrificing efficiency or programmability, marks a new paradigm in the development of smart contracts and decentralised applications.
Source: Innovation Digest
