Traditionally, we’ll start with an explanation. Zero knowledge proof is known as zero disclosure proof. It is a cryptographic protocol that allows another party to confirm the correctness of certain data without its disclosure by the first party.

This concept is used in a number of different applications. For example, the most popular of these is the ZK-Rollups technology in the Etherium network. It features the placement of hundreds of transactions into a single transaction, which saves not only space in a block, but also the amount of processing power required to create the block.

Etherium versus other cryptocurrencies

Zero-disclosure proof can now be used in other ways, with this solution also benefiting the decentralised asset industry.

How data is protected in the cryptocurrency world

According to Henderson, zkKYC integration will greatly accelerate the adoption of cryptocurrencies among people who have yet to interact with them. Here’s a relevant rejoinder from the expert.

Organisations and individual users are more likely to participate in the development of the decentralised finance industry if they get more assurances on compliance with anti-money laundering and counter-terrorist financing [AML/CTF] standards.

According to Cointelegraph’s sources, zkKYC will allow users to validate certain information about themselves to service providers without having to disclose personal details such as their last name or show proof of identity.

In theory, sharing this information would be enough to satisfy AML and CTF regulatory requirements for crypto start-ups in the industry. In doing so, these users would not receive additional disclosure of sensitive information to another party. The expert continues.

The system assumes that a trusted third party validates personal information and then issues a cryptographic proof of validity to a personal wallet, which can then be shared with financial platform providers.

In other words, the aforementioned financial services provider - a crypto-exchange, for example - will receive confirmation of the user's identity in encrypted form. Even if an exchange gets hacked and leaks data, customer information will still be encrypted. Only law enforcement authorities will be able to retrieve it, if there is a valid reason.

An example of going through a “classic” KYC procedure on Binance

However, Henderson admits that “storing sensitive information is still an unresolved issue.” He shared two ideas on how user data should be managed. Here’s the quote.

One idea is for trusted organisations to store identity documents off the blockchain, issuing only encrypted proof of identity. Another idea is to have the wallet transaction signed with a regulatory agency, which then registers that wallet with the identity proof.

In other words, the problem lies with the aforementioned “third party”, which still has to somehow obtain customer documents for encryption. In theory, the zkKYC concept looks like a good solution – especially against the background of recent developments with the Celsius platform. Recall that it is currently going through court proceedings due to bankruptcy. During the trial, Celsius disclosed a list of its customers along with their transactions.

Given the leaked data, an anonymous member of the cryptocurrency community even ranked users by the amount of losses. The former owner of the equivalent of $40 million lost the most.

A list of those affected by the Celsius bankruptcy

Applying the zkKYC concept, if successful, could attract more ordinary people to the crypto industry. Still, for many, sending a photo of their own ID to start crypto trading is taboo due to fears of personal information leakage. If this weak link in the system is fixed, in the long run, the cryptosphere will gain a lot of benefits and interested participants at the same time.


We believe that the mass adoption of this technology will really attract new users. Still, newcomers to the cryptocurrency world are usually afraid to disclose their own data like passport photos and selfies - for example, because they don't understand the legal status of digital assets and fear for their security. In this regard, being able to confirm their identity without disclosing data is a really good opportunity. And such a system would clearly be useful for other platforms, including outside of the cryptocurrency industry.


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