Homomorphic Encryption-based Vaults for Anonymous Balances on VM-enabled Blockchains

Abstract: In this work, we present homomorphic encryption-based vaults (Haults), a permissioned privacy-preserving smart wallet protocol for VM-enabled blockchains that keeps users' balances confidential, as well as the amounts transacted to other parties. To comply with regulations, we include optional compliance features that allow specific entities (the auditors) to retrieve transaction amounts or execute force transfers when necessary. Our solution uses ElGamal over elliptic curves to encrypt balances, combined with zero-knowledge proofs to verify the correctness of transaction amounts and the integrity of the sender's updated balance, among other security checks. We provide a detailed explanation of the protocol, including a security discussion and benchmarks from our proof-of-concept implementation, which yield great results. Beyond in-contract issued tokens, we also provide a thorough explanation on how our solution can be compatible with external ones (e.g., Ether or any ERC20).