Blockchain Geographic Key Validation for Sanctions Compliance
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Solution Overview
Problem
The decentralized and anonymous nature of blockchains makes it difficult to implement geographically unauthorized transaction prevention, as traditional methods rely on identifying physical locations of participants, which is not feasible with blockchain transactions.
Innovation Solution
Participants provide geographic location information during onboarding, assigning a geographic key, and use smart contracts to validate transactions, ensuring compliance with sanctions and regulations by matching or checking geographic keys before processing transactions.
Engineering Contradictions & Design Principles
Engineering Contradiction Analysis
1Reliability
If blockchain transactions remain decentralized and anonymous, then participant privacy is protected, but geographic location identification becomes impossible
Solution Approach 1:
The system segments participant information by creating separate components: public blockchain addresses remain anonymous while geographic keys store location information. This segmentation allows sanctions compliance checks on geographic data without exposing participant identities, resolving the contradiction between maintaining anonymity and enabling location-based sanctions enforcement.
Solution Approach 2:
Geographic keys serve as intermediaries between anonymous blockchain addresses and geographic location data. These keys enable sanctions compliance verification by providing location information without revealing participant identities, acting as a mediator that satisfies both privacy protection and sanctions enforcement requirements.
2Reliability
If geographic location information is collected during onboarding, then sanctions compliance can be enforced, but system complexity increases
Solution Approach 1:
The geographic key system serves multiple functions: it enables sanctions compliance verification, facilitates geographic routing, and maintains participant anonymity. This multi-functionality reduces the need for separate systems for each purpose, thereby managing complexity while achieving comprehensive sanctions enforcement.
Solution Approach 2:
Geographic location information and keys are collected during the onboarding process before transactions occur. This preliminary action ensures compliance data is readily available when needed for sanctions verification, eliminating the need for complex real-time location tracking systems and simplifying the overall architecture.
3Reliability
If geographic keys are verified for every cross-location transaction, then sanctions compliance improves, but transaction processing time increases
Solution Approach 1:
The system applies geographic key verification selectively: it is mandatory for cross-location transactions but not required for same-location transactions. This partial application of the compliance check reduces unnecessary processing time for domestic transactions while maintaining sanctions compliance for international transactions, balancing reliability and efficiency.
Data Source
AI summary
Methods and systems for preventing geographically unauthorized blockchain transactions are discussed herein. Participants in a blockchain provide information during an onboarding process to identify a geographic location associated therewith. During the onboard, a geographic key is assigned to the participant based on their geographic location. When a new proposed blockchain transaction is submitted, the geographic keys associated with the participants are identified. If the geographic keys match, which indicates that the participants are associated with the same geographic location, then the transaction is authorized and goes through a standard blockchain approval process. If the geographic keys do not match, indicating that the participants are in different geographic locations, then a check is performed to determine if the transaction can proceed using a smart contract, which determines if there are any sanctions or other regulations preventing the transaction from taking place between the participants in the associated geographic locations.