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Privacy-Preserving Compliance in On-Chain Finance

Zero-knowledge proofs and credentials can reduce unnecessary disclosure, but compliance still depends on identity evidence, issuer trust, current policy, and accountability.

Published
Published July 30, 2026
Reading time
14 min read · 3149 words

Abstract

Public blockchains make transaction verification widely accessible while creating persistent visibility into financial activity. Compliance processes often respond by collecting and duplicating identity data. This paper examines whether zero-knowledge proofs, verifiable credentials, and selective disclosure can verify defined compliance facts without exposing unnecessary personal information. It combines cryptographic standards, public-ledger privacy research, and architecture analysis. The evidence supports technical feasibility for predicate proofs and data-minimized credentials, but not a claim that zero knowledge can replace identity proofing, legal judgment, monitoring, or governance. A workable model separates issuer, holder, verifier, policy, credential status, and on-chain proof verification. Privacy is treated as controlled disclosure, not immunity from lawful accountability. **Keywords:** privacy-preserving compliance; zero-knowledge proofs; verifiable credentials; selective disclosure; privacy-preserving KYC; on-chain identity

Abstract

Public blockchains make transaction verification widely accessible while creating persistent visibility into financial activity. Compliance processes often respond by collecting and duplicating identity data. This paper examines whether zero-knowledge proofs, verifiable credentials, and selective disclosure can verify defined compliance facts without exposing unnecessary personal information. It combines cryptographic standards, public-ledger privacy research, and architecture analysis. The evidence supports technical feasibility for predicate proofs and data-minimized credentials, but not a claim that zero knowledge can replace identity proofing, legal judgment, monitoring, or governance. A workable model separates issuer, holder, verifier, policy, credential status, and on-chain proof verification. Privacy is treated as controlled disclosure, not immunity from lawful accountability.

Keywords: privacy-preserving compliance; zero-knowledge proofs; verifiable credentials; selective disclosure; privacy-preserving KYC; on-chain identity

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Publication disclosures

Conflict of interest
PraxiHub is associated with Praxifi. The author may hold roles or ownership interests in Praxifi, whose broader research interests include privacy-preserving verification and financial automation. No implementation from Praxifi was tested.
Relationship to Praxifi
PraxiHub is associated with Praxifi and serves as its research and knowledge initiative. Some authors, editors, contributors, or administrators of PraxiHub may also hold roles, ownership interests, or professional responsibilities within Praxifi.

Citation and access

Suggested citation

Alireza Heidari (2026). Privacy-Preserving Compliance in On-Chain Finance. PraxiHub.

BibTeX

@misc{Heidari2026Privacy,
  author = {Heidari, Alireza},
  title = {Privacy-Preserving Compliance in On-Chain Finance},
  year = {2026},
  url = {https://thepraxihub.com/research/privacy-preserving-compliance-on-chain-finance}
}

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