Privacy-Preserving Noninteractive Compliance Audits of Blockchain Ledgers with Zero- Knowledge Proofs

Abstract

Privacy and auditability have been conflicting design requirements for blockchain- based distributed ledgers since the inception of the field. As purpose-built blockchains with permissioned consensus and client access are developing in a broad and diverse range of industries, a specific form of this dichotomy is emerging: the need to audit the handling of regulated on-ledger financial assets, such as central bank digital currencies, while preserving the privacy and confidentiality of transactions as much as possible. This paper proposes a novel, privacy-preserving, noninteractive-zero-knowledge-proof-based protocol for a blockchain-based distributed ledger, to prove conformance with fundamental compliance requirements to external auditing parties. We present an extendable implementation and demonstrate the practicality of the approach.