Privacy-preserving overdraft management using blockchain
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Solution Overview
Problem
Existing account-based overdraft management models are not privacy-friendly, as they leak access patterns, while UTXO-based models do not allow financial institutions to detect overdrafts without compromising user privacy.
Innovation Solution
A computer-implemented method using a first overdraft token computed based on user identifiers, initial overdraft values, and encryption keys, combined with zero-knowledge proofs, to enable privacy-preserving overdraft management by allowing financial institutions to trace overdraft-related operations on a blockchain.
Engineering Contradictions & Design Principles
Engineering Contradiction Analysis
1Ease of operation
If account-based management model is used, then overdraft management is easy to handle, but user privacy is compromised due to leaked access patterns
Solution Approach 1:
The patent introduces an intermediary layer (zero-knowledge proof system and blockchain smart contracts) between the user and the financial institution. This intermediary enables the institution to verify overdraft conditions and manage credits without directly accessing or exposing sensitive user account data, thus resolving the contradiction between ease of management and privacy protection.
Solution Approach 2:
The patent replaces traditional account-based mechanical management systems with a cryptographic system based on zero-knowledge proofs and blockchain technology. This substitution allows for automated overdraft detection and management while preserving user privacy, as the new system verifies conditions through cryptographic proofs rather than direct account access.
2Loss of information
If UTXO-based management model is used, then user privacy is preserved, but financial institutions cannot detect when users go into overdraft
Solution Approach 1:
The patent implements preliminary action by having users generate and submit zero-knowledge proofs of their account balances and overdraft conditions before transactions are processed. This allows financial institutions to detect overdraft conditions in advance while maintaining user privacy, as the proofs provide verifiable information without exposing sensitive data.
Solution Approach 2:
The patent changes the parameters of the UTXO model by incorporating cryptographic proofs and smart contract logic that enable overdraft detection. By modifying the verification parameters to include zero-knowledge proofs of balance conditions, the system maintains privacy while enabling institutions to detect when users exceed their credit limits.
3Difficulty of detecting and measuring
If traditional overdraft management is implemented, then institutions can detect overdrafts, but access patterns are leaked compromising privacy
Solution Approach 1:
The patent replaces traditional mechanical overdraft detection methods that directly query account balances with a cryptographic verification system. Financial institutions receive and verify zero-knowledge proofs that confirm overdraft conditions without revealing access patterns or sensitive account information, thus resolving the contradiction between detection capability and privacy protection.
Solution Approach 2:
The patent uses cryptographic transformations analogous to color changes, where sensitive account data is transformed into cryptographic proofs that appear different (like different colors) but contain verifiable information about the original state. This allows overdraft detection while hiding the underlying access patterns and sensitive data.
Data Source
AI summary
The invention is notably directed to a computer-implemented method of managing user overdrafts in a privacy-preserving manner. The method comprises issuing a first overdraft token computed based on a user identifier of a given user, an initial overdraft value, a first serial number, and an encryption key that is shared with the given user. Next, the method generates a zero-knowledge proof of that said overdraft value is equal to a maximal value of credit granted to said given user. The method subsequently computes an overdraft issuance transaction based on the first overdraft token and the first zero-knowledge proof, signs the computed overdraft issuance transaction using a secret key that is not shared with the given user, and finally submits the overdraft issuance transaction to a blockchain for validation.