Composite Cryptographic Data Structures for Compliance Validation

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Solution Overview

Problem

Managing cryptographic keys and transacting with different cryptographic assets is cumbersome and computationally intensive, especially in open markets lacking client identifiers, posing scalability challenges for regulatory compliance and security.

Innovation Solution

A composite cryptographic data structure is instantiated on a distributed ledger, allowing identity validation through whitelist or blacklist mechanisms, enabling secure and efficient transactions with reduced computational overhead by using reference mechanisms for token reconciliation and policy rules for re-balancing.

Engineering Contradictions & Design Principles

VSEngineering Contradiction Analysis

1Reliability

If identity validation and regulatory compliance checks are implemented for each cryptographic transaction, then security and auditability are improved, but computational overhead and transaction complexity increase

Engineering Contradiction:

Improveregulatory complianceVSAvoidtransaction complexity

Core Design Contradiction:

ReliabilityVSDevice complexity

Solution Approach 1:

The system performs identity validation and regulatory compliance checks in advance during account setup and token issuance, rather than during each transaction. Accounts are pre-validated and registered with regulatory information, and tokens are issued with embedded compliance metadata. This preliminary action eliminates the need for repeated validation during transactions, reducing computational overhead while maintaining compliance.

Inventive Principle:

Principle #10Preliminary action

Solution Approach 2:

The system creates simplified representations of compliance data that can be quickly verified during transactions. Instead of performing full identity validation checks on each transaction, the system uses pre-computed compliance certificates and regulatory registries that can be rapidly validated. These copies of compliance information enable fast verification without repeating the entire validation process.

Inventive Principle:

Principle #26Copying

2Reliability

If cryptographic keys are managed separately for each cryptographic asset, then security is improved, but ease of operation deteriorates

Engineering Contradiction:

ImprovesecurityVSAvoidkey management

Core Design Contradiction:

ReliabilityVSEase of operation

Solution Approach 1:

The system merges multiple cryptographic key management functions into a unified account structure. Instead of requiring users to manage separate keys for each asset, the system provides a single account that can hold multiple cryptographic assets with different key pairs. The account abstraction layer handles key management automatically, allowing users to transact with multiple assets using simplified authentication rather than managing individual keys.

Inventive Principle:

Principle #5Merging (Combining)

Solution Approach 2:

The system implements self-service key management where cryptographic operations are performed automatically by the platform infrastructure. Private keys are generated, stored, and managed by the system rather than users. Users interact through public keys and signed messages, and the system automatically handles key rotation, recovery, and security updates without requiring user intervention in key management operations.

Inventive Principle:

Principle #25Self-service

3Loss of information

If on-chain transactions are used for each cryptographic asset transfer, then transparency and auditability are improved, but transaction fees and computational overhead increase

Engineering Contradiction:

Improvetransaction transparencyVSAvoidtransaction fees

Core Design Contradiction:

Loss of informationVSLoss of energy

Solution Approach 1:

The system segments transactions into on-chain and off-chain components. Critical compliance and settlement information is recorded on-chain for transparency and auditability, while routine transaction execution occurs off-chain with minimal on-chain footprint. This segmentation allows the system to maintain regulatory transparency requirements while reducing the frequency and cost of on-chain transactions.

Inventive Principle:

Principle #1Segmentation

Solution Approach 2:

The system creates a unified account structure that can represent multiple different cryptographic assets and compliance regimes within a single on-chain entity. Instead of requiring separate on-chain transactions for each asset type or compliance framework, the universal account structure handles diverse assets and regulatory requirements through a single standardized interface, reducing the total number of on-chain transactions required.

Inventive Principle:

Principle #6Universality (Multi-functionality)

Data Source

PatentUS20250307787A1System and method for composite cryptographic transactions

Publication Date: 2025.10.02 ROYAL BANK OF CANADA

AI summary

A composite cryptographic data structure is described, and corresponding methods, systems, and computer readable media. The composite cryptographic data structure is instantiated based on an underlying set of cryptographic tokens (e.g., blockchain/distributed ledger tokens) that, in some embodiments, are transferrable through on-chain transactions established on one or more distributed ledger networks. Identity validation, in some embodiments, may occur at one of composite cryptographic data structure instantiation or composite cryptographic data structure redemption, or both, through the use of a whitelist or a blacklist data structure.