Identity Chain

TL;DR

IdentityChain tackles the tension between user privacy and regulatory compliance in crypto identity management by proposing a privacy-preserving KYC service atop public blockchains. It leverages cryptographic primitives such as $PRF_K(x)$, blind signatures, zero-knowledge proofs, and threshold encryption to enable private attestation with selective disclosure and auditable accountability. The framework defines a decentralized governance model with a Supreme Committee and Certificate Authorities, plus user and website interactions via on-chain boards to ensure transparency and enforce rules. The authors outline a practical road map, including Layer 2 integration and DApp support, to enable scalable, privacy-preserving KYC across fintech ecosystems while maintaining regulatory visibility.

Abstract

The first generation of cryptocurrencies introduced revolutionary concepts, yet faced challenges in privacy and regulatory compliance. While subsequent cryptocurrencies aimed to address privacy concerns (like Zcash and Monero), they often conflicted with regulatory frameworks, hindering broader adoption. In response, inspired by recent researches about privacy and accountability and incentive techniques in Blockchain, we propose IdentityChain as a novel framework that integrates privacy and accountability principles, leading to a robust system equipped with adaptable rules. IdentityChain is a KYC (Know Your Customer) service on top of a public Blockchain (e.g., Ethereum, Ton, Polygon). The goal is to maintain privacy while ensuring compliance with existing regulations. Privacy is one of the key characteristics of IdentityChain, it's crucial for preventing conflicts of interests further discussed how. Accountability is also one of the main characteristics of IdentityChain and prevents from misbehave of users. Privacy and accountability together wouldn't be possible unless advancements in cryptography.

Figures (5)

• Figure 1: Components of the IdentityChain system and their interactions.
• Figure 2: This figure shows the three steps of SC member operations. Step one pertains to becoming a member during the initial phase. Step two pertains to a new individual becoming a member after the initial phase. Step three pertains to a member exiting the SC. SC members may vote to expel a member, but since this is not part of the normal process, it is not shown in this figure.
• Figure 3: This diagram shows the operational steps of a CA. In the first step, the CA must receive, study, and accept the terms and conditions, and then lock a certain amount of money as collateral in the IdentityChain smart contract. In the second step, a vote is conducted on the membership of this CA. If accepted, the CA can authenticate users. In the third step, the CA must notify 6 months in advance to exit the system and transfer its database. Then, the locked money is released. During these steps, the CA might be expelled from the system, but this is not shown because it is not part of the regular process.
• Figure 4: In this figure, the steps that the User takes are shown. In the first step, the User selects their geografical area's relevant CA from among the verified CAs. Then, they go through the KYC process to obtain a certificate. In the second step, a new public key and private key is generated. It is charged with the IdentityChain token and then sent anonymously, along with a fee, to the smart contract. This fee is given to the corresponding CA. In third step, the User visits a Website. The Website allows the User access by checking the smart contract. The KYC process must be repeated every six months. It is possible for the User's identity to be disclosed by the decision of SC, but it is not shown in the figure as it is not part of the normal process.
• Figure 10: Summary of IdentityChain setup information

Theorems & Definitions (4)

• Definition 1
• Definition 2
• Definition 3
• Definition 4