Author: Amal Ibraymi, Legal Advisor at Aztec Labs

When cybercriminals breached UnitedHealth's technology department in 2025, nearly 200 million people's data was compromised. Months later, Coinbase admitted that overseas customer support agents were bribed for access to user data. These are not isolated incidents; they are symptoms of a broken system.

Existing compliance rules designed to protect us force companies to hoard vast amounts of sensitive personal data, creating an irresistible honeypot for hackers. Most businesses do not wish to bear this responsibility, but regulators require it. This reality leads to the perception that privacy and compliance are fundamentally opposed.

But it doesn't have to be this way. Breakthrough technologies like zero-knowledge (ZK) proofs and decentralized identity make it possible to prove compliance without exposing sensitive personal data. This means verifying age without disclosing a birthday or confirming eligibility without revealing a name. These technologies disrupt traditional notions: privacy is not a cost of compliance; it is becoming compliance's most powerful ally and even a competitive advantage.

For decades, compliance has felt like extortion of personal data. Regulators require companies to prove they are not facilitating malicious activities and that they comply with anti-money laundering (AML) and know your customer (KYC) laws. Historically, the only way companies ensured this was by collecting vast amounts of sensitive data about users to verify customer identities.

What is the result? Enormous liability. Data breaches not only lead to embarrassing headlines; they also expose individuals to identity theft, phishing, and fraud. The model of "achieving compliance through collection" has turned everyday businesses into data warehouses that are inherently vulnerable.

Thanks to innovations like ZK proofs, applications can now successfully comply with regulations without viewing or storing consumer data. Users can now confirm they are not on a sanctions list without exposing their identity. They can also prove they are of legal age to transact without revealing their birth date. For the first time in history, companies do not have to sacrifice user protection to comply with the rules.

We now have the tools to break this cycle. Adopting ZK proofs to address compliance and consumer protection issues is not just a technical initiative; it is a philosophical shift. This shift marks the end of "achieving compliance through collection" and heralds the beginning of "achieving compliance through computation" and a default design of absolute privacy.

ZK proofs are rewriting the rulebook for verification, completely eliminating the need for paper records. They empower individuals to hold credentials and share minimal information only when necessary. Additionally, privacy-preserving analytics can add another layer of protection, achieving oversight without forcing companies to dump vast amounts of raw personal data into vulnerable centralized locations.

These technological innovations are no longer just hypothetical; they are already in practical use. Last year, the Buenos Aires government integrated ZK proofs into its city application, providing residents with more default privacy. The app is designed to give users access to city services and sensitive documents, allowing them to prove they are of legal age to purchase alcohol or record vaccination status without putting personal information at risk.

For companies, compliance is not optional; it is critical for ongoing operations. However, enabling private data transactions is a choice, and companies that choose to protect user data through ZK-proof-supported solutions will have a competitive advantage, especially as consumers increasingly recognize privacy as a priority.

Privacy-preserving compliance also creates additional economic incentives for implementation, such as increased retention rates and reduced audit costs. Regulators expect businesses to implement stringent standards to prove they are meeting these standards, but historically, this has taken the form of companies collecting troves of user data. These data honeypots attract malicious actors, and in centralized systems, can lead to massive data breaches, making individuals vulnerable to identity theft, phishing scams, and other attacks.

Privacy-preserving compliance disrupts the traditional model: it allows companies to exclude sensitive information while complying with the rules, thereby building trust and reducing risk in one fell swoop.

Customers may trust brands that can prove they meet regulatory standards without hoarding sensitive information. For example, tools like Calimero Network's data verification and Taceo's coSNARK network prove compliance while keeping personal details unrecorded. Solutions like ZKPassport enable individuals to prove their nationality, age, or residence in the identity space without exposing unnecessary information.

This is the future of compliance: proving without overexposing. This approach reduces the consequences of violations, cuts compliance costs, and aligns with the global trend of data minimization mandated by laws in Europe, the UK, and US states. In a competitive market, this combination is a significant selling point. Winning brands will be those that can say, "We meet every requirement, but we still don’t know your birthday."

Ultimately, the real question is not whether we can afford the cost of privacy; it is whether we can afford to ignore it. Big tech companies and regulators must move beyond data hoarding and embrace new models that prove compliance while providing just enough information. Privacy-preserving compliance is not just a thought experiment. Today, it is possible, practical, and absolutely necessary.

Author: Amal Ibraymi, Legal Advisor at Aztec Labs.

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This article is for general informational purposes only and is not intended to be, nor should it be construed as, legal or investment advice. The views, thoughts, and opinions expressed here are solely those of the author and do not necessarily reflect or represent the views and opinions of Cointelegraph.

Original article: Opinion: Compliance Should Not Come at the Cost of Privacy

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