Regulatable and Privacy-Preserving Blockchain via Anomaly Detection on Private Transactions

Abstract

The recent popularity of cryptocurrencies like Bitcoin and Ethereum has drawn widespread attention to the blockchain technique. In particular, some private cryptocurrencies like Zerocash and Monero enhance privacy protection by concealing the identities of participants and transaction amounts. However, such comprehensive privacy measures present regulatory challenges to malicious activities like money laundering and extortion. Therefore, building a novel blockchain that maintains privacy while supporting regulatory oversight is crucial. In this paper, we propose a regulatable and privacy-preserving blockchain scheme that introduces a decoupled and preparatory regulatory process. It serves as a privacy-preserving first line of defense, enabling the identification of anomalous transactions without compromising the confidentiality of the underlying data. Our approach pioneers a method for anomaly screening on private transactions, mitigating risks without resorting to key escrow or content recovery, thus preserving end-to-end privacy for legitimate users. Initially, we explore suitable transaction features within private blockchains for training machine learning classifiers to detect anomalous behaviors. Subsequently, we customize a privacy-centric classifier employing homomorphic encryption to achieve private computation of anomaly detection without leaking sensitive information from private transaction content. We then construct the zero-knowledge proof for validating the encrypted computation process. Our work pioneers in fully integrating homomorphic encryption with zero-knowledge proof, enabling credible and trustworthy verification of the homomorphic ciphertext computations. Finally, we conduct comprehensive security analysis and experimental simulations. The experimental results demonstrate the efficiency and scalability of our approach.