Study shows: Anonymous stablecoin payments will soon be possible

A stablecoin makes it possible to make fiat payments without leaving the blockchain ecosystem. This is often an advantage, especially when trading, as it saves you having to go through a bank. It is hard to imagine the DeFi sector without them, as they represent an important bridge between the traditional fiat world and the world of cryptocurrencies. After all, a stablecoin maps euros, US dollars and Co. in a one-to-one ratio. What is still missing, however, are options for paying anonymously with them.

Anonymous stablecoin payments are possible

A study that BTC-ECHO has received in advance now shows that this could change soon. In “How to design a compliant, privacy-preserving fiat stablecoin via zero-knowledge proofs” the authors of the study Dr. Jonas Gross, Johannes Sedlmeir and Simon Seiter that non-interactive zero-knowledge proofs, in short: zK-SNARKs, can play a decisive role here.

However, as the study, which was carried out under the auspices of eTonec, Hauck Aufhäuser Lampe and the University of Luxembourg, shows, using this proof method would make it possible to protect the privacy of users while still complying with the regulations on money laundering guidelines.

The authors suggest using the Mina Foundation blockchain protocol for this. dr Jonas Gross sums it up to BTC-ECHO as follows:

Zero-knowledge proofs will be an essential backbone for the payments of the future, as they enable the preservation of the privacy of sensitive digital payment data. As we showed in the study, zero-knowledge technology combined with digital identities can even be used to develop a stablecoin system that protects privacy while complying with anti-money laundering legal requirements. The Mina protocol is a suitable technology to make use cases based on zero-knowledge proofs a reality due to its zero-knowledge capabilities and its extreme efficiency and the reason why we chose to work with the Mina Foundation around decided this study.

dr Jonas Gross, eTonec GmbH

zK-SNARK: Verification without details

The idea behind the proposed zK-SNARKs is to verify transactions without going into details about the sender and receiver. This means that it is confirmed whether a transaction was carried out correctly. However, no information about the respective parties will be released.

In this way, what has long been possible analogously is finally becoming digital: the exchange of small amounts of money without disclosing personal information. The practical side effect is that everything happens quickly because a reduced amount of information has to be sent. Johannes Sedlmeier sees an opportunity for the future of payment transactions here. Compared to BTC-ECHO, the co-author of the study With:

With the declining importance of cash as a means of payment, consumers are gradually losing the ability to make small, private payments. I believe that in the future digital payments should be possible as a replacement, which offer a similar privacy as with cash; up to a certain monthly or yearly limit to prevent abuse, e.g. B. for money laundering. Privacy should be maintained without having to rely on a bank or government not to analyze or store these transactions […].

Johannes Sedlmeir, SnT, University of Luxembourg

Anyone who has been involved with the crypto space for a while may be familiar with zK-SNARKs. The privacy coin ZCash uses it to obfuscate transactions. The disadvantage of privacy coins, however, is that they can only be used to a limited extent in payment transactions due to crypto-typical exchange rate fluctuations. They are also a thorn in the side of regulators.

The future of stablecoins

The study lays the groundwork for developing a new stablecoin that has privacy features while not sacrificing security. Kurt Hemeker from the Mina Foundation identifies the study as a signpost for future developments:

The cooperation of the Mina Foundation with etonec, Hauck Aufhäuser Lampe and the University of Luxembourg has shown that it is possible to use ZK technology to protect privacy and comply with legal regulations in payment transactions. These insights are guiding the design and adoption of fiat-based stablecoins and central bank digital currencies (CBDCs) that foster confidence and stability in the digital economy

Kurt Hemeker, Mina Foundation