FC-GUARD: Enabling Anonymous yet Compliant Fiat-to-Cryptocurrency Exchanges

TL;DR

FC-GUARD is a privacy-preserving fiat-to-cryptocurrency exchange system that maintains user anonymity while ensuring regulatory compliance through verifiable credentials and zero-knowledge proofs.

Contribution

It introduces a novel system combining privacy and compliance in fiat-to-cryptocurrency exchanges using advanced cryptographic techniques.

Findings

System implementation on desktop and mobile platforms

Feasibility demonstrated through practical evaluation

Maintains user anonymity while enabling regulatory compliance

Abstract

With the rise of decentralized finance, fiat-to-cryptocurrency exchange platforms have become popular entry points into the cryptocurrency ecosystem. However, these platforms frequently fail to ensure adequate privacy protection, as evidenced by real-world breaches that exposed personally identifiable information (PII) and crypto addresses. Such leaks enable adversaries to link real-world identities to cryptocurrency transactions, undermining the presumed anonymity of cryptocurrency use. We propose FC-GUARD, a privacy-preserving exchange system designed to preserve user anonymity without compromising regulatory compliance in the exchange of fiat currency for cryptocurrencies. Leveraging verifiable credentials and zero-knowledge proof techniques, FC-GUARD enables fiat-to-cryptocurrency exchanges without revealing users' PII or fiat account details. This breaks the linkage between users' real-world identities and their cryptocurrency addresses, thereby upholding anonymity, a fundamental expectation in the cryptocurrency ecosystem. In addition, FC-GUARD complies with key regulations over cryptocurrency usage, such as know-your-customer requirements and auditability for tax reporting obligations by integrating a lawful de-anonymization mechanism that allows the auditing authority to identify misbehaving users. This ensures regulatory compliance while defaulting to privacy protection. We implement our system on both desktop and mobile platforms, and our evaluation shows its feasibility for practical deployment.