Coinbase urges US to modernize financial compliance with zero-knowledge proofs

Coinbase challenges traditional Know-Your-Customer models, advocating for privacy-first compliance via zero-knowledge proofs.

Cover art/illustration via CryptoSlate. Image includes combined content which may include AI-generated content.

Coinbase has urged US lawmakers to modernize the Bank Secrecy Act (BSA) by incorporating Zero-Knowledge Proofs (ZKPs) into the country’s financial compliance framework.

In an Aug. 4 statement, Coinbase’s Chief Legal Officer Paul Grewal argued that ZKPs could enhance financial transparency while simultaneously protecting consumer privacy.

Why Zero-Knowledge Proofs?

According to him, the existing Know-Your-Customer (KYC) process mandated by the BSA poses security risks, as it is often stored in large, centralized databases vulnerable to cyberattacks.

While he noted that the collected information frequently goes unused, he pointed out that they remains an attractive target for criminals.

Considering this, he argued that ZKPs offer a novel solution that allows users to prove specific details—such as their identity or age—without disclosing the underlying data.

According to him:

“In financial cases, you could open a new account with a company like Coinbase without sharing decades of personal data, instead using ZKPs to prove you are not on any sanctions lists, you’re not a minor, etc. And if law enforcement wanted detailed information on the customer, they would be able to subpoena the company that issued the ZKP.”

Grewal also emphasized that ZKPs could transform how financial institutions share information with government agencies.

By automating the transfer of necessary data points for specific transactions, regulators could ensure compliance while minimizing the exposure of sensitive consumer data. This system would also reduce unnecessary data aggregation, which currently risks compromising millions of law-abiding citizens’ privacy in an attempt to track a small number of wrongdoers.

‘Buy the dip’

Coinbase’s advocacy for the crypto-related technology coincides with market analysts describing the exchange’s recent stock decline as an opportunity for long-term investors.

In an Aug. 4 note to investors shared with CryptoSlate, Mark Palmer, a Senior Research Analyst at Benchmark, attributed the decline to short-term traders reacting to the weaker-than-expected Q2 results.

However, Palmer believes this presents a strategic entry point for investors with a longer investment horizon.

He identified several reasons Coinbase remains well-positioned for future growth, including its agreements with Circle to benefit from USD Coin (USDC) adoption, its expanding prime brokerage platform, and its growing influence in the institutional crypto space.

Additionally, Coinbase’s ambitious development of a “super app” that combines trading, payments, DeFi, NFTs, and more could become a unique offering in the U.S. market.

Furthermore, Palmer noted that Coinbase’s integration of DEXs into its platform allows users to trade a broader range of tokens. With these developments, Coinbase is positioning itself for sustained growth and increasing crypto adoption.

Considering this, Palmer reiterated his “Buy” recommendation for Coinbase stock, with a target price of $421.

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