Private, Auditable, and Distributed Ledger for Financial Institutes

2025-01-07

AI Summary

Financial institutions face a fundamental trade-off among privacy preservation, regulatory compliance, and high-throughput transaction processing. Method: This paper proposes Private Auditable Distributed Ledger (PADL), a novel ledger architecture tailored for financial institutions. PADL introduces a table-structured ledger model and pioneers the integration of zero-knowledge proofs with a programmable privacy policy engine. Contribution/Results: The design ensures transaction graph anonymity, strong integrity guarantees, and fine-grained, non-intrusive regulatory auditing. PADL supports multi-asset, multi-party complex transactions and is validated across three real-world use cases: asset exchange, clearing and settlement, and bond markets. Experimental results demonstrate superior performance over state-of-the-art approaches, achieving significant improvements in reconciliation efficiency and risk audit capability while maintaining strict privacy and compliance requirements.

Technology Category

• Machine Learning: Privacy
• Multiagent Systems: Mechanism Design
• Data Mining & Knowledge Management: Representing, Reasoning, and Using Provenance, Trust

Application Category

• Security and Privacy: Blockchains and distributed ledgers
• Responsible Web: Data and user privacy-enhancing technologies for the Web
• Economics, Online Markets and Human Computation: Fairness, privacy, and diversity in economic environments

Abstract

Distributed ledger technology offers several advantages for banking and finance industry, including efficient transaction processing and cross-party transaction reconciliation. The key challenges for adoption of this technology in financial institutes are (a) the building of a privacy-preserving ledger, (b) supporting auditing and regulatory requirements, and (c) flexibility to adapt to complex use-cases with multiple digital assets and actors. This paper proposes a framework for a private, audit-able, and distributed ledger (PADL) that adapts easily to fundamental use-cases within financial institutes. PADL employs widely-used cryptography schemes combined with zero-knowledge proofs to propose a transaction scheme for a `table' like ledger. It enables fast confidential peer-to-peer multi-asset transactions, and transaction graph anonymity, in a no-trust setup, but with customized privacy. We prove that integrity and anonymity of PADL is secured against a strong threat model. Furthermore, we showcase three fundamental real-life use-cases, namely, an assets exchange ledger, a settlement ledger, and a bond market ledger. Based on these use-cases we show that PADL supports smooth-lined inter-assets auditing while preserving privacy of the participants. For example, we show how a bank can be audited for its liquidity or credit risk without violation of privacy of itself or any other party, or how can PADL ensures honest coupon rate payment in bond market without sharing investors values. Finally, our evaluation shows PADL's advantage in performance against previous relevant schemes.

Problem

• Distributed Ledger System
• Privacy Protection
• Complex Transaction Handling

Innovation

• Privacy-enhanced
• Distributed Ledger
• Advanced Cryptography