Blockchain technology is revolutionizing the way digital currencies are issued, transferred, and managed. By leveraging cryptographic principles such as discrete logarithm problems and one-way functions, blockchain enables secure, transparent, and tamper-resistant transactions—especially in centralized or hybrid systems like central bank digital currencies (CBDCs). This article explores how blockchain facilitates digital currency encryption, secure payments, data queries, and information submission through advanced cryptographic techniques applied across different node types: super nodes, regular nodes, debtors, and creditors.
Core Mechanisms of Blockchain-Based Digital Currency Systems
At the heart of this system lies a structured network composed of super nodes (e.g., central banks or regulatory authorities) and regular nodes (e.g., financial institutions or enterprises). These nodes interact using public-key cryptography, where each holds a private key and a corresponding public key with a discrete logarithmic relationship.
The system operates under shared parameters:
- A cyclic group $ G $ of order $ p $
- A generator $ g $
- Public system parameters $ SP = (G, p, g) $
Each node generates its own key pair:
- Private key: a random secret number $ \alpha $
- Public key: $ PK = g^\alpha $
Nodes join the blockchain network by submitting their public keys to a management authority, which issues digital certificates after verification. This ensures trust and identity integrity within the ecosystem.
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1. Digital Currency Issuance via Super Nodes
Encryption Process
When a central authority (super node) issues digital currency to a recipient (regular node), it follows a secure encryption protocol:
- Generate Secret Random Number:
Using its private key $ SK_1 $, the super node performs a one-way function (e.g., hash or discrete log operation) to derive a secret random number $ r_1 $.
Optionally, a public random number $ \chi $ can be combined with $ SK_1 $ to enhance unpredictability. - Encrypt Currency Data:
The super node uses $ r_1 $ and the recipient’s public key $ PK_2 $ to encrypt the currency amount $ M_0 $, producing an encrypted issuance ciphertext $ C_0 $.
This relies on encryption schemes based on the discrete logarithm problem, ensuring confidentiality. - Create Issuance Signature:
A digital signature $ \sigma_1 $ is generated using the super node’s private key and $ C_0 $, ensuring authenticity and non-repudiation. - Broadcast Issuance Message:
The message containing $ C_0 $, $ \sigma_1 $, $ PK_1 $, and optionally $ \chi $ is broadcast across the blockchain network.
After consensus validation, the issuance data is stored immutably in a block.
Querying Issued Currency
Later, the super node can retrieve the issued amount without storing plaintext data:
- Recompute $ r_1 $ using its private key.
- Apply a decryption algorithm using $ r_1 $ and the recipient's public key to decode $ C_0 $ from the blockchain.
- Recover the original value $ M_0 $.
This eliminates the need to store sensitive data locally—only the private key and blockchain data are required.
2. Secure Digital Payments Between Nodes
Digital payments occur between debt nodes (payers) and creditor nodes (payees), facilitated by cryptographic coordination with super nodes.
Payment Encryption Workflow
- Session Key Generation:
The debt node computes a shared session key $ r_0 = PK_1^{\alpha_{21}} = (g^{\alpha_1})^{\alpha_{21}} $ using its private key $ SK_{21} $ and the super node’s public key $ PK_1 $.
This mutual derivation ensures only authorized parties can access transaction details. - Derive Secret Random Number:
From $ r_0 $, generate $ r_1 $ via direct use, hashing, or combining with a public random number $ \gamma $. - Encrypt Payment Data:
Use $ r_1 $ and the creditor’s public key $ PK_{22} $ to encrypt the payment amount $ M_1 $, yielding payment ciphertext $ C_1 $. - Sign and Broadcast:
Generate a payment signature $ \sigma_2 $ using the debt node’s private key and broadcast the full payment message.
Once confirmed by consensus, the transaction is permanently recorded.
3. Querying Encrypted Payment Records
Both debtors and super nodes can later verify payment details:
For Debtors:
- Regenerate session key using own private key and super node’s public key.
- Derive $ r_1 $
- Decrypt $ C_1 $ using $ r_1 $ and creditor’s public key
- Retrieve payment information
For Super Nodes (Regulatory Oversight):
- Generate same session key using debt node’s public key and own private key
- Follow identical steps to decrypt and audit transactions
This dual-access model supports user transparency while enabling regulatory compliance—all without storing intermediate secrets.
4. Submitting Data to Authorities via Regular Nodes
In compliance or reporting scenarios, regular nodes submit encrypted data to super nodes.
Secure Submission Process
- Generate secret random number from own private key.
- Encrypt submission data (e.g., transaction logs) using this number and super node’s public key → submission ciphertext $ C_2 $
- Sign with private key → submission signature $ \sigma_3 $
- Broadcast message including sender/receiver keys
Retrieval by Regular Node
To review past submissions:
- Recompute secret number using private key
- Use it along with super node’s public key to decrypt $ C_2 $
- Access original submitted data
No persistent storage of plaintext or random numbers is needed—only blockchain records and private keys.
Key Advantages of This Blockchain Framework
| Benefit | Explanation |
|---|---|
| Reduced Storage Burden | Nodes reconstruct secrets on-demand using private keys; no need to store random numbers or plaintexts |
| Enhanced Security | Relies on computationally hard problems (discrete logarithms); resists brute-force attacks |
| Regulatory Compliance | Super nodes can audit transactions without full access to user data |
| Tamper-Proof Ledger | All encrypted records stored on immutable blockchain |
| Scalability | Supports large-scale deployments like national digital currencies |
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Frequently Asked Questions (FAQ)
Q1: How does this system protect against unauthorized access to digital currency data?
The system uses asymmetric encryption based on discrete logarithm hardness. Only entities possessing the correct private key can generate the necessary secret random numbers to decrypt data. Even if ciphertexts are visible on-chain, they remain unreadable without access to the corresponding private keys.
Q2: Can multiple parties decrypt the same encrypted transaction?
Yes—but only under controlled conditions. For example, both the debtor and super node can decrypt a payment record because they independently generate the same session key using complementary private and public keys. This allows for transparency without compromising security.
Q3: Is there a risk of private key exposure when generating secret random numbers?
No direct exposure occurs. One-way functions ensure that deriving the private key from the secret random number is computationally infeasible. Additionally, optional use of public randomizers further obscures patterns that could aid cryptanalysis.
Q4: How does this support central bank digital currency (CBDC) implementation?
This framework aligns perfectly with CBDC needs:
- Centralized control via super nodes (central banks)
- Privacy-preserving encryption for users
- Auditability for anti-money laundering (AML)
- Immutable transaction history
It balances decentralization benefits with regulatory oversight.
Q5: What happens if a node loses its private key?
Loss of a private key means permanent loss of access to decrypt associated data. However, since all ciphertexts are stored on-chain, recovery may be possible through backup mechanisms or trusted custodial arrangements—though these must be carefully designed to avoid single points of failure.
Q6: Are these methods compatible with existing blockchain networks?
While tailored for permissioned or consortium blockchains (like enterprise or government systems), core principles—such as session keys and deterministic secret generation—can be adapted to public chains with appropriate modifications for scalability and gas efficiency.
Conclusion: Building Trust in Digital Finance
Blockchain-powered digital currency systems offer unprecedented levels of security, efficiency, and traceability. By integrating cryptographic primitives like one-way functions and discrete logarithms into every stage—from issuance to payment, query, and reporting—these systems minimize trust assumptions while maximizing privacy and compliance.
Whether deployed for national digital currencies or enterprise financial networks, this architecture sets a new standard for secure, auditable, and scalable digital asset management.
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