Coercion-Resistant Financial Privacy on Public Blockchains: Formal Construction, Multi-Network Testnet Deployment, and Multi-Asset Validation

Abstract

Financial privacy protocols on public blockchains protect transaction linkability but offer no defense when users are physically compelled to reveal their credentials — the "$5 wrench attack." This paper presents a complete solution in two integrated parts. Part I provides the formal cryptographic foundation: dual-nullifier arithmetic selectors within Groth16 zk-SNARK circuits, where path selection between real and decoy funds is computed entirely within the zero-knowledge witness without conditional branching. The R1CS structure is identical for both execution paths (<8% overhead), and the resulting proof is computationally indistinguishable regardless of whether coercion resistance was activated. We formalize peace of mind as a protocol design principle, prove coercion resistance through a four-game sequence-of-games reduction under the Sponge PRF and q-SDH assumptions, and prove withdrawal soundness, double-spend prevention, and front-running resistance. Part II presents ZK-Sentinel V11: a Diamond EIP-2535 architecture with 10 independently upgradeable facets and 104 functions; Stealth Shielded Transfers eliminating temporal correlation at ~60% lower gas cost; 92 privacy pools across 12 tokens on two networks; and a Multi-Tier Compliance Oracle with 4 KYC levels. Indistinguishability is confirmed empirically: a Random Forest classifier trained on 10,000 simulated transactions achieves 50.3% accuracy (AUC-ROC 0.501, p=0.87), consistent with random guessing. To our knowledge, this is the first work providing both a formal coercion resistance proof and a production-scale multi-asset deployment validated across all 12 tokens on two networks.