SoK: Privacy-Enhancing Technologies in Finance

Recent years have seen the emergence of practical advanced cryptographic tools that not only protect data privacy and authenticity, but also allow for jointly processing data from different institutions without sacrificing privacy. The ability to do so has enabled implementations a number of traditional and decentralized financial applications that would have required sacrificing privacy or trusting a third party. The main catalyst of this revolution was the advent of decentralized cryptocurrencies that use public ledgers to register financial transactions, which must be verifiable by any third party, while keeping sensitive data private. Zero Knowledge (ZK) proofs rose to prominence as a solution to this challenge, allowing for the owner of sensitive data (e.g. the identities of users involved in an operation) to convince a third party verifier that a certain operation has been correctly executed without revealing said data. It quickly became clear that performing arbitrary computation on private data from multiple sources by means of secure Multiparty Computation (MPC) and related techniques allows for more powerful financial applications, also in traditional finance. In this SoK, we categorize the main traditional and decentralized financial applications that can benefit from state-of-the-art Privacy-Enhancing Technologies (PETs) and identify design patterns commonly used when applying PETs in the context of these applications. In particular, we consider the following classes of applications: 1. Identity Management, KYC & AML; and 2. Markets & Settlement; 3. Legal; and 4. Digital Asset Custody. We examine how ZK proofs, MPC and related PETs have been used to tackle the main security challenges in each of these applications. Moreover, we provide an assessment of the technological readiness of each PET in the context of different financial applications according to the availability of: theoretical feasibility results, preliminary benchmarks (in scientific papers) or benchmarks achieving real-world performance (in commercially deployed solutions). Finally, we propose future applications of PETs as Fintech solutions to currently unsolved issues. While we systematize financial applications of PETs at large, we focus mainly on those applications that require privacy preserving computation on data from multiple parties

From Bitcoin to Solana -- Innovating Blockchain towards Enterprise Applications

This survey presents a comprehensive study of recent advances in block-chain technologies, focusing on how issues that affecting the enterprise adoption were progressively addressed from the original Bitcoin system to Ethereum, to Solana etc. Key issues preventing the wide adoption are scala-bility and performance, while recent advances in Solana has clearly demon-strated that it is possible to significantly improve on those issues by innovat-ing on data structure, processes and algorithms by consolidating various time-consuming algorithms and security enforcements, and differentiate and balance users and their responsibilities and rights, while maintaining the re-quired security and integrity that blockchain systems inherently offer

DeFi: Shadow Banking 2.0?

The growth of so-called “shadow banking” was a significant contributor to the financial crisis of 2008, which had huge social costs that we still grapple with today. Our financial regulatory system still hasn’t fully figured out how to address the risks of the derivatives, securitizations, and money market mutual funds that comprised Shadow Banking 1.0, but we’re already facing the prospect o fShadow Banking 2.0in the form of decentralized finance, or “DeFi.” DeFi’s proponents speak of a future where sending money is as easy as sending a photograph–but money is not the same as a photograph. The stakes are much higher when money is involved, and if DeFiis permitted to develop without any regulatory intervention, it will magnify the tendencies towards heightened leverage, rigidity, and runs that characterized Shadow Banking 1.0. Fortunately, though, there is still time to prevent DeFi from becoming Shadow Banking 2.0. This Essay argues for precautionary regulation of DeFi, designed to limit its growth and to cordon off whatever remains from the established financial system and real-world economy. While proponents of DeFi will contend that this will limit innovation, this Essay argues that DeFi innovation has limited benefits for society. DeFi doesn’t aspire to provide new financial products and services–it simply aspires to provide existing financial products and services in a decentralized way (meaning, without intermediaries). This Essay will demonstrate that the DeFi ecosystem is in fact full of intermediaries and explain why full disintermediation of financial services is an entirely unrealistic aspiration. This Essay will then proceed from that finding to argue that if DeFi cannot deliver on decentralization, regulators should feel emboldened toclamp down on DeFi in order to protect the stability of our financial system and broader economy

Blockchain Initiatives for Tax Administration

A thriving body of literature discusses various legal issues related to blockchain, but often it mixes the discussion about blockchain with cryptocurrency. However, blockchain is not the same as cryptocurrency. Defined as a decentralized, immutable, peer-to-leer ledger technology, blockchain is a newly emerging data management system. The private sector—including the financial industry and supply chains—and the public sector—property records, public health, voting, and compliance, have all begun to utilize blockchain. Since more data is processed remotely, and thus digitally, the evolution of blockchain is gaining stronger momentum. While scholarship on blockchain is growing, none of the scholarship has considered the impact of blockchain on the tax sector. This Article extends the study of blockchain to tax administration, evaluates the feasibility of incorporating blockchain within existing tax administrations, and provides policymakers with criteria to consider and some recommended designs for blockchain. Blockchain can enhance the efficiency and transparency of tax administration through its ability to deliver reliable, real-time information from many sources to a large audience. Further, a well-designed private consortium blockchain, evolved from the classic public blockchain, may effectively protect taxpayers\u27 information. Potential areas that blockchain could enhance are payroll taxes, withholding taxes, value added taxes, transfer pricing, the sharing of information between federal, state, and local governments as well as countries. This Article offers normative considerations for policymakers deliberating blockchain initiatives for tax administration, such as timeline, standardization, its integration with other systems, its limitations, and the accompanying legislation to regulate the government and the taxpayer’s rights and privacy. Those implications may resonate with a broader audience beyond tax policymakers

Hyperledger Fabric: A Distributed Operating System for Permissioned Blockchains

Fabric is a modular and extensible open-source system for deploying and operating permissioned blockchains and one of the Hyperledger projects hosted by the Linux Foundation (www.hyperledger.org). Fabric is the first truly extensible blockchain system for running distributed applications. It supports modular consensus protocols, which allows the system to be tailored to particular use cases and trust models. Fabric is also the first blockchain system that runs distributed applications written in standard, general-purpose programming languages, without systemic dependency on a native cryptocurrency. This stands in sharp contrast to existing blockchain platforms that require "smart-contracts" to be written in domain-specific languages or rely on a cryptocurrency. Fabric realizes the permissioned model using a portable notion of membership, which may be integrated with industry-standard identity management. To support such flexibility, Fabric introduces an entirely novel blockchain design and revamps the way blockchains cope with non-determinism, resource exhaustion, and performance attacks. This paper describes Fabric, its architecture, the rationale behind various design decisions, its most prominent implementation aspects, as well as its distributed application programming model. We further evaluate Fabric by implementing and benchmarking a Bitcoin-inspired digital currency. We show that Fabric achieves end-to-end throughput of more than 3500 transactions per second in certain popular deployment configurations, with sub-second latency, scaling well to over 100 peers.Comment: Appears in proceedings of EuroSys 2018 conferenc

Unchaining Collective Intelligence for Science, Research and Technology Development by Blockchain-Boosted Community Participation

Since its launch just over a decade ago by the cryptocurrency Bitcoin, the distributed ledger technology (DLT) blockchain has followed a breathtaking trajectory into manifold application spaces. This paper analyses how key factors underpinning the success of this ground-breaking “internet of value” technology, such as staking of collateral (“skin in the game”), competitive crowdsourcing, crowdfunding, and prediction markets, can be applied to substantially innovate the legacy organization of science, research and technology development (RTD). Here, we elaborate a highly integrative, community-based strategy where a token-based crypto-economy supports finding best possible consensus, trust and truth through adding unconventional elements known from reputation systems, betting, secondary markets and social networking. These tokens support the holder’s formalized reputation, and are used in liquid-democracy style governance and arbitration within projects or community-driven initiatives. This participatory research model serves as a solid basis for comprehensively leveraging collective intelligence by effectively incentivizing contributions from the crowd, such as intellectual property (IP), work, validation, assessment, infrastructure, education, assessment, governance, publication, and promotion of projects. On the analogy of its current blockbusters like peer-to-peer structured decentralized finance (“DeFi”), blockchain technology can seminally enhance the efficiency of science and RTD initiatives, even permitting to fully stage operations as a chiefless Decentralised Autonomous Organization (DAOs)

Blockchain takes to the skies : an assessment of blockchain applications in the airline industry

Recently, the airline industry increasingly turned towards blockchain technology and started investigating potential use cases. Despite the clear interest in the emerging technology, academic contributions in this field remain scarce. This dissertation strives to close this research gap and explore promising blockchain use cases and their value for the airline industry. Moreover, factors important for the successful implementation of the use cases are discussed. The research questions were answered following a qualitative approach in the form of ten expert interviews, supplemented by the examination of secondary literature. A quantitative approximation of the qualitative insights was adopted to capture the value of the use cases. An order of relevance was established for the initial 14 use cases based on which four promising blockchain use cases, namely “loyalty points”, “aircraft parts provenance”, “travel distribution landscape” and “passenger ID management” were identified. Quantitative approximation of qualitative insights indicated that the use case “loyalty points” is likely to create the most value as compared to the remaining three use cases. For successful implementation, it is vital to avoid considering the technology as a solution searching for problems to be solved and clearly identifying the measurable economic impact of a given use case. Additionally, strategic implications, enablers and roadblocks, as discussed in this study, must be considered. Looking ahead, mainstream adoption of blockchain technology in the airline industry is only expected by approximately 2024. Future research could be directed towards the individual analysis of promising use cases presented in this study.Recentemente, o setor das companhias aéreas direcionou-se cada vez mais para a tecnologia “blockchain” e começou a investigar possíveis casos de uso. Apesar do claro interesse pela tecnologia emergente, as contribuições academicas neste campo permanecem escassas. Esta dissertação procura diminuir a escassez de pesquisa e explorar casos promissores do uso de “blockchain” e o seu valor para o setor aéreo. Além disso, são discutidos fatores importantes para uma implementação bem sucedida dos casos de uso. As perguntas do estudo foram respondidas seguindo uma abordagem qualitativa na forma de dez entrevistas com especialistas, complementadas pelo exame de literatura secundária. Uma aproximação quantitativa dos insights qualitativos foi adotada para capturar o valor dos casos de uso. Uma ordem de relevância foi estabelecida para os 14 casos de uso iniciais, com base nos quais foram identificados quatro casos promissores de blockchain, como “loyalty points”, “aircraft parts provenance”, “travel distribution landscape” e “passenger ID management”. A aproximação quantitativa das informações qualitativas indicou que o caso de uso "loyalty points" provavelmente criará o maior valor em comparação com os restantes três casos de uso. Para uma implementação bem-sucedida, é essencial evitar considerar a tecnologia como uma solução, procurando problemas a serem resolvidos e identificando claramente o impacto economico mensurável de um determinado caso de uso. Além disso, implicações estratégicas, facilitadores e obstáculos, como discutido neste estudo, devem ser considerados. Olhando para o futuro, a adoção convencional da tecnologia “blockchain” no setor de transporte aéreo é esperada apenas em aproximadamente 2024