Pseudonymous Blockchain Transactions via Trusted Third Party Verification

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Solution Overview

Problem

Existing blockchain systems face challenges in maintaining pseudonymous transactions while complying with Know Your Customer (KYC) regulations and transaction reporting requirements, as direct exchange of identifying information can compromise pseudonymity.

Innovation Solution

A trusted third party provides certification of compliance with regulations, keeping the first and second parties pseudonymous, by issuing verifiable credentials that cryptographically ensure validity, allowing regulatory agencies to access encrypted identifying information as needed.

Engineering Contradictions & Design Principles

VSEngineering Contradiction Analysis

1Reliability

If direct exchange of identifying information is performed between parties to satisfy KYC regulations, then regulatory compliance is achieved, but pseudonymity of the transaction is compromised

Engineering Contradiction:

Improveregulatory complianceVSAvoidpseudonymity

Core Design Contradiction:

ReliabilityVSLoss of information

Solution Approach 1:

The system segments the identification and verification process by introducing a trusted third party that separates the KYC verification function from the transaction execution. The first party's identifying information is segmented from the transaction record, with only a verification credential remaining on-chain, thus maintaining pseudonymity while ensuring compliance.

Inventive Principle:

Principle #1Segmentation

Solution Approach 2:

A trusted third party acts as an intermediary between the first party and the blockchain network. This intermediary performs KYC verification off-chain and issues a verification credential that proves compliance without revealing the first party's identifying information to other parties or the public ledger, thus resolving the contradiction between compliance and pseudonymity.

Inventive Principle:

Principle #24Intermediary (Mediator)

2Reliability

If identifying information is exchanged for transaction reporting requirements, then regulatory reporting is satisfied, but the pseudonymous nature of blockchain transactions is lost

Engineering Contradiction:

Improvereporting complianceVSAvoidtransaction pseudonymity

Core Design Contradiction:

ReliabilityVSLoss of information

Solution Approach 1:

The system extracts identifying information from the public blockchain transaction record and stores it separately in an encrypted form accessible only to authorized regulatory authorities. The extraction of this sensitive data from the public ledger maintains pseudonymity while enabling compliant reporting through controlled access mechanisms.

Inventive Principle:

Principle #2Taking out (Extraction)

Solution Approach 2:

Different parts of the system have different information access rights: the blockchain ledger contains only pseudonymous verification credentials visible to all, while encrypted identifying information is stored in a separate location accessible only to authorized regulators. This local differentiation of information quality maintains pseudonymity publicly while enabling private reporting compliance.

Inventive Principle:

Principle #3Local quality

3Reliability

If a trusted third party performs KYC verification and issues credentials, then regulatory compliance is maintained, but system complexity increases

Engineering Contradiction:

ImproveKYC compliance certificationVSAvoidsystem architecture

Core Design Contradiction:

ReliabilityVSDevice complexity

Solution Approach 1:

The trusted third party performs multiple functions: it acts as a KYC verification service provider, issues cryptographic credentials, maintains encrypted identifying information, and enables regulatory reporting. By consolidating these functions into a single multi-functional entity, the system manages complexity while ensuring comprehensive compliance.

Inventive Principle:

Principle #6Universality (Multi-functionality)

Solution Approach 2:

The system changes the state of identifying information from plaintext to encrypted form, and from public accessibility to authorized-only access. This parameter change in information encoding and access control enables compliance certification while managing the complexity of information security through cryptographic transformations.

Inventive Principle:

Principle #35Parameter changes

Data Source

PatentUS20250182118A1Pseudonymous transactions on blockchains compliant with know your customer regulations and reporting requirements

Publication Date: 2025.06.05 GOLDMAN SACHS & CO LLC

AI summary

A method for compliance with Know Your Customer (KYC) and other regulations includes a pseudonymous globally unique identifier stored on a blockchain that associates a pseudonymous first party address with a globally unique identifier representing the vetted identity of the owner of the address. The method also includes a trusted third party issuing a verifiable credential for a first pseudonymous party to a proposed transaction to a second pseudonymous party to the transaction.