Peirce Proposes Crypto KYC Overhaul with Verifiable Credentials

SEC Commissioner Hester Peirce has proposed a new approach to Know Your Customer (KYC) verification for cryptocurrency investors. Instead of requiring platforms to collect and store customers' full identity files, Peirce suggests using verifiable credentials and zero-knowledge proofs to confirm three key facts: age requirement, eligible jurisdiction, and sanctions screening.

The proposal would allow customers to share only the necessary information with each platform, reducing the amount of personal data stored. This could also reduce the risk of identity fraud and breaches for platforms. However, Peirce's plan is not a rule or exemption, but rather her personal position on the matter.

Peirce notes that verifiable credentials would be issued by trusted issuers, such as government agencies or regulated institutions, which would then store the original documents. The customer would receive a cryptographically signed credential that can be used to confirm their identity without revealing sensitive information. This approach is already accepted by FinCEN in its September 8 guidance on digital credentials.