Privacy-Preserving KYC Verification System Using Blockchain and Zero-Knowledge Proofs (Zident)

Abstract

The current Know Your Customer (KYC) ecosystem is largely built on centralized systems, which are vulnerable to data breaches, incur high operational costs, and often require customers to repeat verification steps unnecessarily [1], [2]. Such centralized designs concentrate sensitive data in single repositories, creating “honeypots” that conflict with modern data privacy standards like the General Data Protection Regulation (GDPR) [3], [4]. At the same time, the transparent nature of public Distributed Ledger Technology
(DLT) presents challenges for maintaining privacy in financial transactions, giving rise to what is often called the “Blockchain-Privacy
Paradox” [5]. This survey explores cutting-edge DLT-based solutions that integrate Self-Sovereign Identity (SSI) and Zero-Knowledge
Proof (ZKP) techniques. Key challenges in current approaches include scalability limitations in certain permissioned blockchains [6],
inadequate mechanisms to fully support GDPR’s Right to Erasure [3], [4], [7], and the absence of reliable protocols to ensure legal access for Anti-Money Laundering (AML) compliance when users are uncooperative [8], [9].