The Technical System and Architecture of Blockchain Privacy Protection based on Encryption

School of Finacial Technology, Hebei Finance University, 071000 Baoding, Hebei, China

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Abstract

The concept of blockchain has transformed the trust concept by decentralizing, non-modifiable, and transparent, but there is a certain conflict between the principle of public verifiability and data privacy. As DeFi and cross-institutional data collaboration should grow, it has become a fundamental concern to have the confidentiality of this data without losing verifiability on-chain. The following paper will be a review of blockchain privacy technologies developed in 2020-2025, which will involve the history of zero-knowledge proofs and homomorphic encryption development at the cryptographic primitive level, as well as share new developments such as secure multi-party computation. It points out advances in recursive proof systems, distributed proof generation architectures and scalable multi-party computing systems to overcome bottlenecks in performance. There is a trade-off between privacy, system performance, regulatory compliance, and decentralization in a comparative analysis of technology integration in both public and permissioned chains. Lastly, research directions in the future are suggested in order to overcome issues associated with low proof efficiency, regulatory compliance problems, and migration of post-quantum cryptography. The review offers both theoretical and technical sources on how to develop trusted blockchain infrastructure that would strike the right balance between compliance, high-performance, and data sovereignty.