A Privacy-Preserving KYC-Compliant Identity Scheme for Accounts on All Public Blockchains

Nigang Sun, Yuanyi Zhang () and Yining Liu
Additional contact information
Nigang Sun: School of Microelectronics and Control Engineering, Changzhou University, Changzhou 213164, China
Yuanyi Zhang: School of Microelectronics and Control Engineering, Changzhou University, Changzhou 213164, China
Yining Liu: School of Computer and Information Security, Guilin University of Electronic Technology, Guilin 541004, China

Sustainability, 2022, vol. 14, issue 21, 1-18

Abstract: Cryptocurrencies have the potential to enable socioeconomic growth throughout the world by offering easier access to capital and financial services. However, many virtual asset service providers (VASPs) that offer cryptocurrency services lack identity management and can be accessed anonymously, which has led to their services being exploited by criminal activities such as money laundering and illegal foreign exchange. Such crimes have a negative impact on socioeconomic sustainability. Building identity systems on blockchains can help VASPs improve their identity management to combat cryptocurrency-based crimes so VASPs can better serve the social economy and achieve their sustainability goals. However, existing solutions have privacy problems because the identity provider can associate users’ identities with their wallet accounts. In addition, there is currently no solution that can support all public blockchains unconditionally, as current solutions can only support EVM-compliant blockchains or require additional work to support new blockchains. This article proposes a KYC (know your customer)-compliant identity scheme based on Ethereum using Merkle trees and smart contracts. The identity and wallet accounts are linked by the user rather than the KYC provider so, in general, no one but the user knows the association between the wallet accounts and the identity, which protects privacy. For suspicious accounts, supervisors can trace their identities and thus achieve supervision. In addition, the scheme supports identifying accounts on all public blockchains by using Merkle trees and smart contracts to bind accounts on multiple blockchains to one identity and no extra work is required. Moreover, the scheme supports users to prove that their attributes meet the requirements of VASPs by adopting the BBS+ signature and the Sigma protocol.

Keywords: anti-money laundering; blockchain; digital identity; privacy protection; smart contract; supervision (search for similar items in EconPapers)
JEL-codes: O13 Q Q0 Q2 Q3 Q5 Q56 (search for similar items in EconPapers)
Date: 2022
References: View complete reference list from CitEc
Citations:

Downloads: (external link)
https://www.mdpi.com/2071-1050/14/21/14584/pdf (application/pdf)
https://www.mdpi.com/2071-1050/14/21/14584/ (text/html)

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:gam:jsusta:v:14:y:2022:i:21:p:14584-:d:964742

Access Statistics for this article

Sustainability is currently edited by Ms. Alexandra Wu

More articles in Sustainability from MDPI
Bibliographic data for series maintained by MDPI Indexing Manager ().