One idea: A regulated financial institution could confirm with mathematical proof that the holder of an address sending or receiving cryptocurrency had at some point been verified by a trusted source for KYC purposes without needing to know the address holder’s name or other identifying information. The proof would be required only at the on- and off-ramps between on-chain crypto world and the financial system – i.e., when a cryptocurrency is being exchanged for fiat currency – to keep on-chain crypto transactions frictionless. Meanwhile, we could have system-wide, on-chain data analyses to meet AML needs, identifying nodes engaged in patterns of illicit activity, all without invasive identity requirements.
