How Do Zero-Knowledge Proofs Enable Transaction Verification for AML Purposes without Revealing Sensitive User Data?
Zero-knowledge proofs (ZKPs) allow a "prover" (the user) to demonstrate to a "verifier" (a smart contract or regulator) that a statement is true, without revealing any information beyond the statement's validity. For AML, a user could prove that their identity has been verified by an authorized party, that their funds are not from a sanctioned address, or that a transaction is within a certain limit.
The ZKP mathematically confirms these facts are true without exposing the user's actual identity, transaction history, or exact amounts, thus balancing compliance with privacy.
Glossar
Zk-Snarks
CryptographicProofSystem ⎊ This advanced cryptographic primitive allows a prover to convince a verifier that a statement is true using zero-knowledge proofs, meaning the verification requires minimal computation and no disclosure of the underlying data.
AML
Framework ⎊ Anti-Money Laundering (AML) protocols within cryptocurrency, options trading, and financial derivatives represent a layered compliance architecture designed to detect and prevent illicit financial flows.
Transaction Verification
Attestation ⎊ The process of transaction verification within cryptocurrency, options trading, and financial derivatives fundamentally involves attesting to the validity and authenticity of a transaction.