# How Compliance Works

<figure><img src="https://1310074946-files.gitbook.io/~/files/v0/b/gitbook-x-prod.appspot.com/o/spaces%2FfuRJzJ8cEqekSVBqpKIH%2Fuploads%2F57rcQ4jZP00P5mDby2IA%2Fsede-overview.png?alt=media&#x26;token=39466cd3-7920-46f5-a918-9d6e57e2a564" alt=""><figcaption><p>Overview of SeDe</p></figcaption></figure>

### **Selective De-Anonymization (SeDe) Network**:&#x20;

Veilnyx introduces the SeDe Network to strike a balance between privacy preservation and compliance. SeDe allows for the de-anonymization of illicit transactions through the recursive traversal of subgraphs of linked transactions. It achieves this without centralizing control and decision-making. It operates as follows:

a. **Balancing Privacy**: SeDe aims to balance privacy-preserving features by allowing for the de-anonymization of illicit transactions. It recognizes that privacy should not be absolute and that certain transactions need to be traceable for regulatory purposes.

b. **Multiple Entities**: SeDe distributes the responsibility for de-anonymization among multiple entities, ensuring that no single entity has complete control over this process. This prevents potential abuse of power.

c. **Threshold Encryption**: SeDe uses threshold encryption schemes to protect user data while allowing for controlled de-anonymization when required. This ensures that sensitive information remains confidential until a legitimate need for de-anonymization arises.

d. **Zero-Knowledge Proofs (ZKPs)**: Zero-knowledge proofs are employed to prove the correctness of transactions without revealing sensitive data. This enables the verification of compliance without exposing transaction details.\\

### **Network Components**:

* **Users (U)**: Users of the privacy-preserving application, which can be either honest users seeking privacy or malicious actors.
* **Guardians (G)**: A set of entities responsible for gatekeeping transaction de-anonymization. A minimum quorum of guardians is required to grant de-anonymization permission.
* **Revoker (R)**: An entity with the ability to de-anonymize transactions but requires permission from guardians.

1. **Accountable Anonymity**: Users must adhere to compliance constraints during transactions, ensuring that any attempt to act maliciously will result in the loss of anonymity.
2. **Accountable De-Anonymization**: The revoker cannot de-anonymize transactions without publicly requesting permission from guardians. Guardians, even when colluding, cannot reveal transaction data without cooperation from the revoker.
3. **Non-Fabrication**: Honest users can prove their innocence if falsely accused of involvement in illicit transactions.
4. **Implementation**: SeDe is implemented using threshold encryption schemes and Zero-Knowledge Proofs (ZKPs). Users are constrained to include double-layered encryptions of newly created notes in transaction payloads, and they must provide proofs that the encryptions were performed correctly.
5. **The decryption of Illicit Transactions**: When de-anonymization is required, the revoker initiates the process by signing a de-anonymization request and submitting it to guardians. Guardians verify the request's legitimacy, and if approved, the revoker can decrypt the transaction data. The revoker recursively traces linked illicit transactions until a subgraph of all transactions originating from illicit sources is revealed.
