Is it really possible to achieve both privacy and compliance? This question has been debated for a long time in the cryptocurrency community. Many people instinctively believe that these two are inherently opposed—protecting privacy means sacrificing compliance and regulation, while adhering to compliance requirements means exposing all transaction information. However, the Hedger engine launched by the Dusk project offers a different answer: privacy and compliance can not only coexist but also promote each other.

Let's first look at two common extreme approaches in the industry. One type of project pursues absolute anonymity by encrypting all transaction data, making it impossible for regulators to investigate, but as a result, they become a key focus of attention. The other type completely abandons privacy features, making all transaction information public, which leaves users' asset security completely unprotected. Neither of these paths is viable.

Hedger's design philosophy is entirely different. It adopts a layered encryption architecture, dividing transaction data according to different permission levels. Ordinary users only see their own transaction records, and these are encrypted. Regulatory agencies or auditors, upon obtaining authorization, can only see the information needed to verify compliance—such as confirming that a transaction meets KYC requirements—but cannot see core privacy data like the identities of both parties and transaction amounts. This way, user privacy is protected, and regulatory needs are also satisfied.

In practical applications, this solution is very viable. Financial institutions using Hedger for transactions do not worry about order interception and misuse by opponents, and they can quickly produce compliance proof during regulatory inspections. Ordinary users can hide their asset balances from others when transferring funds, without worrying about their actions being mistaken for illegal activities. It’s a win-win for both institutions and individuals.

What’s even more noteworthy is that Hedger’s compliance design is not an afterthought patched onto the system but is integrated from the very bottom of the technical architecture. From encryption algorithms to account models and transaction processes, each layer incorporates compliance requirements. Supporting features like generating transaction reports according to regulations and opening third-party audit interfaces are not simple modules that can be added easily; they require deep adaptation at the underlying technical level. This demonstrates the Dusk team’s profound understanding of the seemingly contradictory needs for privacy and compliance.