A Private Smart Wallet with Probabilistic Compliance

2025-06-05

AI Summary

This paper addresses the fundamental tension between privacy preservation and regulatory compliance in smart wallets. Method: We propose a privacy-first, verifiably compliant UTXO-based smart wallet system featuring: (i) a novel invitation-only private onboarding mechanism; (ii) a two-tiered compliance framework comprising zero-knowledge proofs (“proofs of innocence”) attesting that users are absent from sanction lists, and Bloom-filter–based probabilistic ancestor commitment tracing for lightweight, off-chain verifiable UTXO-chain state auditing; and (iii) encrypted Blob storage, UTXO state compression, and Base L2–enabled lightweight interaction. Contributions/Results: Private transfers and compliance checks complete in under one second on consumer-grade laptops; ZKP generation overhead is low; on-chain L2 transaction costs are minimal; and strong unlinkability and contact privacy are rigorously guaranteed.

Technology Category

• Machine Learning: Privacy
• Natural Language Processing: Ethics — Bias, Fairness, Transparency & Privacy
• Data Mining & Knowledge Management: Representing, Reasoning, and Using Provenance, Trust

Application Category

• Security and Privacy: Cryptocurrency and smart contracts
• Responsible Web: Data and user privacy-enhancing technologies for the Web
• Systems and Infrastructure for Web, Mobile and WoT: Decentralized Web and Fediverse systems

Abstract

We propose a privacy-preserving smart wallet with a novel invitation-based private onboarding mechanism. The solution integrates two levels of compliance in concert with an authority party: a proof of innocence mechanism and an ancestral commitment tracking system using bloom filters for probabilistic UTXO chain states. Performance analysis demonstrates practical efficiency: private transfers with compliance checks complete within seconds on a consumer-grade laptop, and overall with proof generation remaining low. On-chain costs stay minimal, ensuring affordability for all operations on Base layer 2 network. The wallet facilitates private contact list management through encrypted data blobs while maintaining transaction unlinkability. Our evaluation validates the approach's viability for privacy-preserving, compliance-aware digital payments with minimized computational and financial overhead.

Problem

• Privacy-preserving smart wallet with compliance checks
• Invitation-based private onboarding mechanism
• Minimized computational and financial overhead

Innovation

• Invitation-based private onboarding mechanism
• Bloom filters for probabilistic UTXO tracking
• Encrypted contact lists with unlinkable transactions