A Hitchhiker's Guide to Privacy-Preserving Cryptocurrencies: A Survey on Anonymity, Confidentiality, and Auditability

2025-05-27

AI Summary

This study addresses the inherent tension between user privacy—encompassing anonymity, confidentiality, and unlinkability—and regulatory compliance—particularly auditability—in privacy-enhancing digital currencies, including cryptocurrencies and central bank digital currencies (CBDCs). Method: We propose a design-oriented privacy analysis framework, formalizing three generations of evolutionary models that systematically map privacy objectives to cryptographic primitives (e.g., zero-knowledge proofs, ring signatures, homomorphic encryption), protocol mechanisms, and system architectures. Our analysis draws on a horizontal comparison of over 120 privacy-preserving schemes. Contribution/Results: We identify three critical technical bottlenecks: cryptographic construction limitations, consensus mechanism constraints, and inadequate regulatory interface design. The framework yields a practical, implementable technology roadmap for next-generation CBDCs—informing system design, policy formulation, and international standardization efforts aimed at reconciling privacy protection with lawful oversight.

Technology Category

• Machine Learning: Privacy
• Natural Language Processing: Ethics — Bias, Fairness, Transparency & Privacy
• Game Theory and Economic Paradigms: Mechanism Design

Application Category

• Security and Privacy: Privacy-enhancing technologies
• Economics, Online Markets and Human Computation: Economic aspects of blockchain and cryptocurrencies
• Responsible Web: Data and user privacy-enhancing technologies for the Web

Abstract

Cryptocurrencies and central bank digital currencies (CBDCs) are reshaping the monetary landscape, offering transparency and efficiency while raising critical concerns about user privacy and regulatory compliance. This survey provides a comprehensive and technically grounded overview of privacy-preserving digital currencies, covering both cryptocurrencies and CBDCs. We propose a taxonomy of privacy goals -- including anonymity, confidentiality, unlinkability, and auditability -- and map them to underlying cryptographic primitives, protocol mechanisms, and system architectures. Unlike previous surveys, our work adopts a design-oriented perspective, linking high-level privacy objectives to concrete implementations. We also trace the evolution of privacy-preserving currencies through three generations, highlighting shifts from basic anonymity guarantees toward more nuanced privacy-accountability trade-offs. Finally, we identify open challenges at the intersection of cryptography, distributed systems, and policy definition, which motivate further investigation into the primitives and design of digital currencies that balance real-world privacy and auditability needs.

Problem

• Surveying privacy goals in digital currencies like anonymity and confidentiality
• Mapping privacy objectives to cryptographic methods and system designs
• Addressing challenges in balancing privacy with regulatory auditability

Innovation

• Taxonomy mapping privacy goals to cryptographic primitives
• Design-oriented linking privacy objectives to implementations
• Three-generation evolution of privacy-accountability trade-offs