KYC is a privacy trap- Is there a way to regain control?
Discover how Labyrinth’s Decom Network redefines compliance in Web3, balancing privacy and regulation without invasive KYC. Our Selective De-Anonymization (SeDe) ensures decentralized compliance while protecting user data. Try it now on testnet and experience privacy-first compliance!
KYC: Where Privacy Goes to Die
Let’s be real—privacy and compliance in blockchain are like oil and water. No matter how hard you shake, they just don’t mix. You either hand over your personal info on a silver platter with KYC or you risk dancing outside the lines of regulations.
Ever felt like signing up for a "privacy solution" is the same as handing over your life story? “Here’s my name, address, financial history—oh, and take my privacy while you’re at it!”
That’s KYC for you, the place where privacy goes to die.
Now, here’s the real juggling act in Web3:
How do we protect privacy,
keep bad actors out, and
still keep everything decentralized?
It’s like trying to balance a plate while riding a unicycle.
Traditional compliance is clunky.
Deposit limits frustrate legitimate users.
Sanctioned addresses? They’re always a step behind.
Blockchain analysis tools? Hit-or-miss with those false negatives.
View-only for regulators depends on cooperation, which isn't exactly hacker-proof.
Then there's KYC—the privacy killer. It forces users to give up personal details, and once someone’s whitelisted, there’s no safeguard if they suddenly turn rogue. Plus this method creates huge data piles that are just sitting ducks, waiting for hackers to pounce. That’s not the future any of us want for Web3.
Self-Sovereign Privacy: The Labyrinth Solution
Balancing privacy with compliance is a tough nut to crack in blockchain. At Labyrinth, we tossed out the idea of forced KYC and embraced a self-sovereign approach.
Instead of revealing your entire life’s story, Labyrinth’s Selective De-Anonymization (SeDe) only pulls back the curtain when it’s absolutely necessary—while keeping regulators happy.
No invasive KYC, no privacy trade-offs.
Just a decentralized system with two flavors of compliance:
Voluntary and Decentralized Compliance (Decom) network.
Voluntary Compliance: Prove You’re Legit, Stay Private
With Voluntary SeDe, you stay in control.
Need to prove your transactions are legit for taxation filling?
You can share only what’s needed without opening the whole Pandora’s box.
Think of it like handing over a “viewing key” for specific transactions. Instead of revealing your entire vault of information, you give access to just the specific info tax authorities or auditors need—while the rest stays hidden.
Labyrinth’s recent integration partnership with 0xbow integrates with their Trust Proof system, so you can verify the genuineness of your funds without revealing where they came from.
It’s like saying, “I’m legit” without showing the world your entire bank statement.
Example: Picture a whale investor. They want to make a private trade but stay compliant. With Labyrinth’s voluntary compliance feature, investors can confirm the funds are legit without revealing transaction details. The regulators are happy, and the investor stays private.
Decentralized Compliance (Decom) Network: Enforced Accountability and Trust
So, what happens when bad actors come into play?
That’s where the Decentralized Compliance (Decom) Network with steps in.
The Decom network with Selective De-anonymisation principles which operates through a system of independent Revokers and Guardians, ensures that no single entity has control.
The goal is simple: prevent illicit activity while preserving privacy. SeDe happens only under strict governance when flagged illicit activity is detected.
Decom network is permissionless, with accountability embedded at every level, ensuring that Users, Revokers, and Guardians are all responsible for their actions.
Selective De-anonymisation Process under Decom network with Mutual Accountability
Signature Verification of Revoker’s public request: Acting as blockchain detectives, Revokers identify suspicious activity and initiates de-anonymization requests. They must publicly post verifiable requests on the governance dashboard to trigger the process, ensuring transparency. Trusted entities such as Chainalysis, TRM Labs, or other governance-approved participants can serve as revokers.
Threshold approval and cryptographic permission by guardian: Serving as the jury, Guardians review Revokers' requests and vote on whether to approve or deny de-anonymization. A threshold mechanism (e.g., 6 out of 10 votes) must be met for de-anonymization to proceed. Even if collusion occurs, Guardians cannot see transaction details; only the Revoker can, and only after receiving the required cryptographic permissions.
De-anonymization: The revoker decrypts only the flagged transaction after cryptographic permissions are granted by the guardian—no other data is touched. During de-anonymization, only the specific transaction under investigation is revealed to the Revoker. If additional illicit activities are found linked to a particular transaction, those will be flagged separately—but no unnecessary data is exposed. Note that even after de-anonymisation is revoked only have view access to that transaction.
So What About Collusion?
Labyrinth’s multi-party system makes it nearly impossible for Revokers or Guardians to collude. Even if one party attempts to manipulate the process, cryptographic checks and decentralized governance prevent unauthorized actions.
Check the demo of Decom on our product release update.
Larger Picture
While the focus here has been on Labyrinth's compliance mechanism, the broader implications of Decom extend much further. Its decentralized compliance framework has the potential to integrate across diverse platforms, from other privacy protocols and dark pool trading to stablecoin transactions issued by governmental bodies. Decom could revolutionize how compliance is maintained across industries, all while keeping user privacy intact.
But that deeper dive is a discussion for another day. For now, it’s clear that Decom offers a rare win-win scenario—balancing user privacy, protocol integrity, and regulatory demands—unlocking the massive market potential for decentralized compliance.
Conclusion: Privacy with Compliance—No KYC Needed
At Labyrinth, we believe compliance doesn’t have to kill privacy. We've built a system that keeps you in control. Selective De-Anonymization allows you to stay compliant without invasive KYC.
No KYC. No privacy invasion. Just decentralized, compliant privacy—exactly how Web3 should be.
Ready to Experience Decom? Test It Now!
Decom Network is already live! Want to see how decentralized compliance works while maintaining your privacy? Head over to our testnet and try it out now! You can check the overview on the release update. We’re gathering feedback and would love your thoughts as we gear up for mainnet!
For more information, check out these important resources:
If you have any questions or want to dive deeper into how DeCom works, don’t hesitate to reach out. Join the conversation on Discord or Twitter for the latest updates.