Balancing Privacy and Regulation of Cross-Chain Transaction Systems via SoK-Assisted Policy Enhancement

Cross-chain systems provide a way for isolated blockchains to communicate and exchange assets and data with each other. Sidechain-based cross-chain systems support more scenarios with more complicated functionalities. However, the correlation of transactions in two underlying blockchains makes the linkability for the sidechain and exposes the identity of transaction parties and transaction amounts. This incurs the cross-chain privacy leakage. Traditional privacy-preserving mechanisms conversely compromise the regulation of transactions, which limits the identification and punishment to malicious transaction parties. To balance privacy and regulation of cross-chain systems, in this paper, we propose PCP, a privacy-preserving policy-enforcement cross-chain protocol between Monero and Bitcoin. It leverages the signature of knowledge to guarantee the correctness and privacy, while sets a trapdoor for tracing authority to revoke the anonymity when the investigation is required. We instantiate a scheme with formal security proof. We conduct a series of experiments by using Fiat-Shamir paradigm with zero-knowledge and the results show that the proposed PCP is cost-reasonable with constant 150 ms for Swap Monero phase, 40 ms for proof generation and 24 ms for proof verification.