SEC's Peirce calls for crypto KYC overhaul using zero-knowledge proofs

Peirce likened the current system to building "ever bigger data haystacks" in the hope of finding illicit actors, but contended that the sheer volume of data makes it harder to detect actual criminals. She proposed leveraging technologies like zero-knowledge proofs, which allow for the verification of specific facts without revealing underlying personal information, such as name, income, or address. This approach, she suggested, could replace the need for each institution to independently collect and store sensitive customer records.

The commissioner's remarks come at a time when data breaches have become a significant concern. Fintech company Revolut recently exposed customer passports and Bitcoin transaction histories following a fraudulent data request, while hardware wallet manufacturer Trezor experienced breaches through a third-party vendor, leading to exposed customer data and subsequent phishing attacks. These incidents have amplified fears of "wrench attacks," where criminals target individuals whose wealth and identity have been compromised.

Peirce, known for her more lenient stance on cryptocurrency regulation within the SEC, criticized what she termed "data maximalists" who prioritize data collection above all else. She indicated that her speech was delivered during her "penultimate week" as a commissioner, suggesting a final push to influence regulatory thinking.