On-chain identity is the digital representation of an individual on the blockchain. The blockchain technology lets individuals have a digital, decentralized identity without having to rely on a single identity provider.
However, some argue that public blockchains gave people transparency, rather than identity. The argument is that things like a crypto wallet address prove that someone controls the keys, but nothing more than that. In fact, it comes with a downside, since every transaction and vote is visible, which could lead to permanent doxxing.
This so-called radical transparency can expose users to a number of threats and consequences, such as surveillance, Sybil attacks, and even compliance conflicts. Some have suggested encrypting the data, but this is not something that can solve the problem on a public blockchain, where metadata can leak, and access patterns persist.
Instead, on-chain identity requires a different solution where users can use their data to prove facts without revealing it.
What “On-Chain Identity” Actually Means
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As noted previously, on-chain identity is more than a person’s wallet address. Your wallet simply acts as a cryptographic handle - a way for people to sign transactions and move money around, but it has no context to it, and it doesn’t explain who the person who owns it is.
A partial solution to this comes in the form of decentralized identifiers (DIDs) - a type of globally unique identifiers that enable entities to be identified in a persistent and verifiable manner. As such, it acts as an identity anchor, but it doesn’t reveal the status or behavior of the user.
Another alternative is Verifiable Credentials (VCs), which is where the meaning enters the picture. Essentially, these are cryptographically-signed claims that come from trusted third parties. For example, they can prove that the user is over 18, or a resident of a specific country, and the like. The holder can present this selectively, without revealing all of their data.
Ultimately, it is important to note that identity and reputation are not the same, and neither is the same as credentials. Reputation comes from behavior, while credentials prove a specific fact, and this distinction is important to prevent privacy from collapsing.
On-Chain Identity Explained
On-chain identity refers to a blockchain-based identity system, that identifies individuals and organizations. This allows them to access digital assets, interact with blockchain tools and services, prove certain facts, and the like, all without exposing personal data. It is not about who you are, but what you can verifiably prove by way of decentralized identifiers and credentials, which play a larger role than the wallet history.
What are the Zero-Knowledge Credentials?
Zero-knowledge credentials, or ZK credentials, are digital proofs that use zero-knowledge proofs (ZK proofs) to verify someone’s identity or qualifications while keeping the underlying data private and preventing its exposure. This lets users prove statements without revealing the data that proves it. In other words, rather than show who you are or what data you own, you prove that you meet conditions while the data stays hidden from the public and other parties.
This is different from how traditional Know Your Customer (KYC) verifications work, as KYC copies and stores sensitive documents to hold the proof itself. Eventually, that data can and likely will leak, exposing the original user.
ZK credentials are also different from on-chain attestations. While both provide cryptographic proof of a claim, ZK credentials allow users to prove specific facts without revealing the data, while traditional on-chain attestations make the underlying data or a unique identifier known to the public.
The way it works is that an Issuer (meaning a bank, government, or some other authority) verifies a claim and issues a credential. Then the user (Holder) stores that credential in their wallet. When they wish to gain access to something like a dApp or prove a claim, the Verifier checks a ZK proof derived from the credential. This lets the Verifier know the answer if the user is eligible to do what they wish to do without revealing the exact details.
This is a safer approach because it doesn’t deposit users’ sensitive data all over the blockchain, wherever they go and interact. There is no database to breach or a data trail to follow.
Selective Disclosure: Proving Only What Is Necessary
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The main advantage of ZK credentials lies in the fact that you only prove what is necessary, rather than sharing all of your data, or rather, any of it. If you need to access something that requires proving your age, residency, or membership, you can use zero-knowledge credentials to only prove one single thing about you, rather than handing over your entire profile.
Compare that to providing your ID, which has your photo, name, address, date of birth, ID number, and similar details - with ZK credentials, you would be able to only provide a confirmation that you are above the age of 18, without revealing any of the other information, including how old you actually are.
These proofs can be designed for one-time use, which can prevent reuse and correlation, or reusable under strict conditions, set into place to prevent linking multiple interactions back to the same person. This selective disclosure matters for GDPR-style compliance principles, such as data minimization and purpose limitation, where the user only reveals what is required for a specific interaction.
Real-World Use Cases
Zero-knowledge identity systems are already being implemented due to their potential to solve a number of problems that have evaded traditional solutions over the years. One example is the KYC and compliance sector, where ZK credentials can let users prove they have passed the necessary regulatory checks without exposing their names and other personal information.
Then, there is DAO governance, where ZK-based identity checks can help prevent Sybil attacks. This is done by enforcing that one person can only vote once, without revealing who that person is.
Another example revolves around token-gated access and airdrops, which can benefit in the same way - protecting an individual’s privacy while still allowing them to enjoy the benefits, such as airdrops. Similarly, proof of personhood systems can use ZK to confirm an individual’s uniqueness rather than identity to enable things like fair voting.
This technology can also assist users in Web3 social, where credentials can allow users to transfer their reputation from platform to platform without relying on public profiles that can reveal user identity. Lastly, ZK can also be used for cross-border DeFi access through jurisdictional proof, essentially showing that the user is located where they need to be to access certain markets without revealing their location.
Implementation Overview
ZK-based identity systems rely on several required components, including wallets, issuers, circuits, and verifiers. Wallets are where the credentials are stored, and they generate proofs locally, while Issuers, such as governments, verify that the user is eligible to receive signed credentials.
ZK circuits also play a crucial role as they define what can be proven without exposing users’ private information, while Verifiers - typically smart contracts - check proofs and allow or refuse access based on whether the credentials are present and valid.
Verification itself can happen on-chain or off-chain, and each has its own benefits and drawbacks. For example, on-chain verification reduces the need for trust to a minimum, but it is expensive and slow. Off-chain verification is both faster and cheaper, but it introduces additional trust assumptions.
Common ZK stacks combine proving systems based on SNARK technology with DID frameworks and credential standards, abstracted behind SDKs, which allows developers to avoid having to deal with cryptography directly. In other words, the real challenge is the user experience, as the system must be fast, private, and easy to understand in order to be adopted by users, rather than abandoned due to complexity or lack of speed.
Security & Privacy
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Zero-knowledge identity systems are one of the most advanced ways of reducing data exposure, but even so, they do not eliminate trust. Issuers, specifically, are the weak point, since they can get compromised, corrupt, or just sloppy, resulting in the credentials being less reliable and safe.
Another thing to keep in mind is that even ZK proofs can leak patterns, leading to problems such as correlation. If credentials are being reused consistently and the timing becomes predictable, someone could track metadata if the systems are not designed extremely carefully.
Then, there is revocation, which is another difficult issue, as credentials must expire or be revocable in a way that would not create global blacklists that reintroduce tracking. To ensure this, you typically need cryptographic accumulators, or credentials that are short-lived, which adds complexity to lifecycle management.
Client-side proving is a safer option because their data doesn’t have to leave their device, while server-side proving is simpler and faster but riskier and can create legal liability.
Lastly, note that ZK is not the ultimate solution for everything. There are things that it simply cannot address and solve, like bad governance, malicious issuers, and flawed incentive design. It can protect privacy, but it has its limits.
Future of On-Chain Identity
On-chain identity is a hot topic in the blockchain industry, but it is also often misunderstood. It doesn’t mean putting your entire life on a public ledger, but rather, it means proving what matters when necessary without leaking data or revealing pieces of information that are not relevant to the situation.
To achieve this, developers combine zero-knowledge proofs, decentralized identifiers, and verifiable credentials, all of which together create a model where users can control disclosure. In many situations, users do not need to disclose information at all, but simply use this technology to prove a fact while keeping their data safe and hidden.
As blockchain technology continues its move from speculative systems into real financial and social infrastructure, data transparency becomes a problem that leads to doxxing oneself, rather than a feature. This is why the new direction is to design identity systems that can prove trust without enabling surveillance, and ZK identity can achieve just that.
