Balancing Privacy and Regulations : How Redacted Money is Solving the Privacy Problem in Blockchain
Blockchain technology is amazing for its transparency—it allows everyone to see and verify transactions. But this transparency can become a problem when it comes to personal privacy. Imagine all your financial transactions being visible to the public; it’s like having your bank statement on display for everyone to see..Every transaction on a public blockchain can be viewed by anyone, which means sensitive financial information is exposed to the world. This transparency is both a strength and a weakness—ensuring accountability and reducing fraud while exposing sensitive user data and user behaviors which can become a big threat in the AI era . This is where Redacted Money comes in. They’re working on a way to keep transactions private while still meeting important rules and regulations.
What Redacted Money is Doing
Redacted Money is developing a unique system that gives users more control over their financial data. They’re creating “shielded accounts” to make sure transactions stay private while still being compliant with laws like anti-money laundering (AML) rules. This is a big step toward solving the blockchain privacy problem. With their approach, users can enjoy the benefits of blockchain without worrying about exposing their personal information.
Redacted Money’s Architecture and Technology
At the heart of Redacted Money’s innovation is its two-layer architecture designed for privacy and compliance. The system introduces shielded accounts, which protect on-chain transactions. The architecture consists of two key contracts:
1. Teller Contract – Responsible for initiating and verifying transactions. It acts as the user’s interface to interact with shielded accounts.
2. Handler Contract – Executes the actual transactions and ensures secure fund handling. It also facilitates refunds, maintaining complete control over asset movements within the private system.
Additionally, Redacted Money employs proxy contracts to enable private interactions with third-party DeFi services like swaps, liquidity pools (LPs), and NFT platforms. This ensures that user data remains confidential even when interacting outside the core ecosystem. Advanced cryptographic techniques, such as zero-knowledge proofs (zk-SNARKs), allow transactions to be verified without revealing details, maintaining privacy while upholding security.
Why Blockchain Privacy Matters
Transparency is often celebrated as blockchain’s defining feature. Every transaction is recorded on a public ledger, visible to anyone with internet access. While this fosters trust and accountability, it inadvertently opens doors to privacy concerns, such as:
Exposure of Sensitive Data: Transaction details, wallet balances, and even user behaviors can be tracked.
Vulnerability to Cyber Threats: Publicly accessible data increases the risk of targeted hacks.
Loss of Financial Anonymity: Individuals and businesses lose control over who can see their financial activities.
For decentralized finance (DeFi) to achieve mass adoption, blockchain systems must address these privacy concerns without undermining their core principles.
GDPR and Blockchain: Can They Work Together?
The General Data Protection Regulation (GDPR) is a law in the European Union that helps protect people’s personal data. It gives individuals more control over their data, like the right to see what data is collected, correct any mistakes, and even delete their information if they want to. However, this becomes tricky with blockchain. Blockchain’s key feature is that once data is recorded, it cannot be changed or deleted. This makes it hard to follow one of GDPR’s important rules: the “right to be forgotten,” which means people should be able to erase their data if they wish.
Another problem is that blockchain is decentralized, which means there is no central authority in charge of the data. With GDPR, businesses need to identify a “data controller”—the person or organization responsible for managing the data. But in blockchain, since there’s no central authority, it’s hard to figure out who should be held responsible for following GDPR. This makes it difficult to ensure blockchain systems can comply with data protection rules.
Key Principles of GDPR
1. Right to Access
Individuals can access their personal data stored by organizations and understand how it is being processed.
2. Right to Rectification
Individuals can request corrections to inaccurate or incomplete personal data.
3. Right to Erasure (Right to be Forgotten)
Individuals have the right to request the deletion of their data under specific circumstances.
4. Data Minimization
Organizations should only collect data that is strictly necessary for their purpose.
5. Accountability and Centralized Control
GDPR requires a clear data controller responsible for compliance.
What Redacted Money Is Doing
Redacted Money is a project that’s working to solve these problems. It focuses on keeping your data private while following rules like GDPR. Instead of putting all the data directly on the blockchain, Redacted Money uses techniques like storing sensitive information outside the blockchain. This means only a reference or code is saved on the blockchain, so the actual data stays private.
They also use advanced technology like Zero-Knowledge Proofs (zk-SNARKs). This lets someone prove a transaction is valid without sharing any details about it. With tools like these, Redacted Money makes sure your data stays private and secure while still being able to comply with regulations.
Redacted Money and GDPR Alignment
Redacted Money is actively addressing these challenges by introducing innovative privacy-focused solutions that align with GDPR principles while preserving blockchain’s core advantages. Here’s how:
1. Immutability and GDPR Challenges
Redacted Money acknowledges the inherent conflict between blockchain immutability and GDPR requirements, such as the “right to be forgotten.” To address this:
Hashing: Redacted Money employs techniques like hashing to encode sensitive data, ensuring it is anonymized and cannot be traced back to an individual while maintaining transparency.
Off-Chain Storage: It explores solutions where personal data is stored securely off-chain, with only cryptographic references or proofs recorded on the blockchain to preserve privacy and compliance.
Permissioned Architecture: By using shielded accounts and proxy contracts, Redacted Money limits exposure of transaction data to trusted or authorized entities, ensuring a more private and GDPR-aligned approach.
2. Privacy Coin Technologies
Redacted Money builds upon privacy coin innovations like those used in Monero and Zcash:
Zero-Knowledge Proofs (zk-SNARKs): Redacted Money integrates advanced cryptographic methods, similar to zk-SNARKs, to verify transactions without exposing sensitive details.
Ring Signatures: While not directly confirmed, the principles behind technologies like ring signatures inspire Redacted’s efforts to anonymize user data and transaction paths.
3. Compliance Framework
Unlike many privacy coins that face regulatory scrutiny, Redacted Money is designed with compliance in mind:
Read-Only Keys: Users can share transaction records with auditors or regulators when required, ensuring privacy without violating legal obligations.
Restricted Withdrawals: Funds can only be withdrawn to the originating address, preventing misuse for illicit purposes and adhering to anti-money laundering (AML) guidelines.
By integrating these technologies and frameworks, Redacted Money aims to strike a balance between privacy, transparency, and compliance, bridging the gap between GDPR, privacy coin features, and blockchain innovation.
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Why This Matters
Redacted Money is trying to make sure that blockchain technology can respect privacy laws while still keeping the benefits of decentralization. By using off-chain storage and zk-SNARKs, Redacted Money allows users to keep their personal data private, but still meet legal requirements if needed. This approach shows that it’s possible to balance privacy and compliance in blockchain technology. While Redacted Money is still working on perfecting these methods, its ideas could lead the way for future blockchain projects to protect privacy while following important data protection laws like GDPR. This is a big step in making blockchain technology safer, more private, and legally compliant for everyone.
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Balancing Privacy and Regulations: How Redacted Money is Solving the Privacy Problem in Blockchain was originally published in Coinmonks on Medium, where people are continuing the conversation by highlighting and responding to this story.