Selective Disclosure: Resolving the Privacy-Compliance Tension

One of the primary barriers to institutional adoption of privacy protocols has been the inability to satisfy regulatory requirements. DarkNet Protocol resolves this fundamental tension through a novel "Selective Disclosure" system.

The Tension: Privacy vs. Compliance

Previous protocols have often fallen into two extremes: Monero offers privacy without any compliance pathway (leading to delistings), while Zcash offers compliance but with opt-in privacy that few users actually use. DarkNet introduces a third way: Private by Default, Compliant on Demand.

The Key Hierarchy

DarkNet addresses utilize a three-level key hierarchy to enable granular control over data disclosure:

• Spending Key (sk): Held exclusively by the owner to authorize expenditures.
• Full Viewing Key (fvk): Decrypts all incoming and outgoing notes, suitable for a full regulatory audit.
• Scoped Viewing Key (svk): A revolutionary key type that only decrypts notes within a defined time window, amount range, or specific asset type.

Compliance Proof Mechanism

Beyond viewing keys, DarkNet allows users to generate specific cryptographic proofs for counterparties:

• Proof of Clean Funds: Proves that funds were not derived from flagged or blacklisted addresses without revealing the actual transaction path.
• Proof of Transaction Range: Proves that all transactions in a given window were below a certain threshold (e.g., $10,000) to satisfy FATF Travel Rule requirements.
• Proof of Identity Binding: Proves the holder has passed KYC with an approved provider without revealing the identity itself.

Both properties — privacy and compliance — are enforced by the cryptographic protocol, not by trust assumptions in the developers or intermediaries.