Privacy Frameworks for Identity ZK-KYC Proposals

As the Web3 ecosystem matures and digital identity becomes increasingly central to applications ranging from decentralized finance (DeFi) to governance, naming protocols, and credential issuance, a core tension continues to surface: how can identity be authenticated in a way that satisfies compliance requirements while preserving the privacy and autonomy that blockchain promises? This challenge has spurred the development of zero-knowledge know-your-customer (ZK-KYC) proposals, which aim to enable users to prove aspects of their identity—such as jurisdiction, age, uniqueness, or KYC completion—without disclosing sensitive personal information. In the context of Web3 naming, where domain ownership often functions as a proxy for identity, integrating ZK-KYC into the naming stack could usher in a new era of privacy-preserving, regulation-compatible identity verification.

Web3 domains such as those issued by Ethereum Name Service (ENS) or Handshake are increasingly used as human-readable wallet addresses, usernames, DAO membership identifiers, and credentials within decentralized applications. While these names provide recognizable, interoperable identities, they are by default pseudonymous and publicly linked to all on-chain activity associated with the wallet. In environments where compliance with anti-money laundering (AML) or KYC regulations is required—particularly for financial applications or jurisdictional access—this pseudonymity becomes a sticking point. Traditional KYC approaches rely on centralized data collection and custodianship, introducing honeypots of personally identifiable information (PII), which are antithetical to the ethos of decentralization.

ZK-KYC offers a potential resolution. By using zero-knowledge proofs (ZKPs), a user can demonstrate possession of verified identity traits without revealing the underlying data. For instance, a user might generate a proof that they are over 18, reside in the EU, and are not on a sanctions list, all without revealing their name, passport number, or exact location. This is achieved through cryptographic constructions that prove a statement is true without disclosing why it is true. In practical terms, this could mean issuing a Web3 domain such as alice.eth or dao.member that is linked to a credentialed wallet, where that credential is privacy-preserving and satisfies compliance conditions on-chain.

The architecture behind ZK-KYC typically involves an identity issuer, such as a KYC provider or government agency, a credential holder (the user), and a verifier (a smart contract or dApp). The issuer attests to certain identity attributes and encodes them into a zero-knowledge-compatible credential. The user can then use this credential to generate proofs for any verifier that asks for them, without disclosing the credential itself. This model is often supported by decentralized identifiers (DIDs), verifiable credentials (VCs), and identity commitment schemes like Merkle trees or zk-SNARK/zk-STARK circuits.

One of the most promising applications in the domain space is using ZK-KYC to gate access to subdomain issuance or exclusive naming rights. A DAO managing a namespace like .citizen might wish to ensure that only unique, human-verified individuals can claim a name under it. Rather than forcing users to submit documents, the DAO could require a zero-knowledge proof of uniqueness and KYC completion from an approved issuer. The smart contract would verify the proof without learning the user’s actual identity, thus enforcing the policy without sacrificing privacy. This allows for scalable, privacy-respecting sybil resistance in public naming ecosystems, which is essential for governance, voting, and reputation systems that rely on one-person-one-vote models.

Integrating ZK-KYC with ENS or similar naming protocols would also allow for more nuanced permissioning. For example, users could selectively reveal certain attributes when interacting with different applications. A DeFi protocol offering higher-risk instruments might require proof of jurisdictional eligibility and income range, while a DAO might only need proof of uniqueness and a history of domain tenure. These proofs can be modular and revocable, meaning users retain control over which parts of their identity they share, when, and with whom. Furthermore, domain names themselves could be configured to reflect these proofs—displaying badges or status indicators when queried by compatible dApps or block explorers.

There are also strong implications for cross-chain identity portability. Because ZK-KYC credentials can be stored off-chain and used to generate proofs on any chain that supports compatible circuits, a user can maintain a single verified identity that travels with them across ecosystems. This solves a major fragmentation issue currently plaguing Web3 identity, where users must re-verify themselves repeatedly on each chain or dApp. A domain like verifieduser.eth could function as a universal credential gateway, interoperable with any verifier contract on Ethereum, Arbitrum, Optimism, Solana, or beyond.

Importantly, ZK-KYC introduces a new regulatory dynamic. By decoupling verification from data custody, platforms can remain compliant without becoming custodians of sensitive data. This reduces liability, simplifies audits, and aligns with GDPR and other data minimization principles. Regulators increasingly recognize the potential of zero-knowledge systems to satisfy risk-based compliance goals while protecting civil liberties. Several pilot projects and regulatory sandboxes are already exploring how ZK-KYC can fit into existing frameworks, with institutions like the EU and MAS in Singapore showing particular interest.

The infrastructure for ZK-KYC is still emerging. Protocols such as Sismo, Polygon ID, zkPass, and Verite are actively developing tools for issuing, proving, and verifying zero-knowledge identity credentials. These platforms integrate with existing wallets and naming systems to build user-friendly, cryptographically secure identity layers. One promising development is the use of ZK-Rollups to batch-verify proofs at scale, dramatically reducing gas costs and making ZK-KYC viable even for low-value interactions like domain renewals or forum access.

Despite its promise, ZK-KYC is not without challenges. Proof construction and verification are computationally expensive and require sophisticated circuit design. Usability remains a barrier, especially for non-technical users unfamiliar with cryptographic terminology. There is also a need for robust ecosystems of trustworthy issuers—entities that perform the initial KYC verification and issue the underlying credentials. Without trust in these issuers, the entire framework loses its foundation. Balancing decentralization with issuer accountability is a key design challenge that the community must solve.

In conclusion, ZK-KYC represents a pivotal advancement in reconciling privacy with compliance in Web3 identity systems. For naming protocols, it offers the ability to preserve anonymity while enforcing uniqueness, access control, and jurisdictional restrictions. It empowers users to prove who they are—cryptographically, securely, and on their terms—without surrendering their personal data. As ZK infrastructure becomes more efficient and adoption grows, Web3 naming systems that integrate ZK-KYC will offer a more resilient, inclusive, and privacy-respecting alternative to both legacy DNS systems and centralized identity platforms. In a future where digital identity is both global and programmable, zero-knowledge will be the scaffolding on which trust is built.

As the Web3 ecosystem matures and digital identity becomes increasingly central to applications ranging from decentralized finance (DeFi) to governance, naming protocols, and credential issuance, a core tension continues to surface: how can identity be authenticated in a way that satisfies compliance requirements while preserving the privacy and autonomy that blockchain promises? This challenge has…