Document Type
Article
Source of Publication
Acm Transactions On The Web
Publication Date
10-16-2025
Abstract
The growing reliance on digital financial services necessitates a secure, efficient, and privacy-centric approach to identity verification and Know Your Customer (KYC) compliance. Traditional identity management systems rely on centralized databases, making them susceptible to data breaches, inefficiencies, and regulatory constraints. Over 10 billion identity records have been exposed in centralized KYC breaches, leading to a 60% increase in financial fraud cases. The rise of Decentralized Finance (DeFi) has further complicated KYC compliance, requiring innovative solutions that balance privacy and regulatory requirements. This paper proposes a Web3-powered decentralized identity framework that leverages blockchain technology, self-sovereign identity (SSI), verifiable credentials (VCs), and zero-knowledge proofs (ZKPs). By eliminating reliance on centralized authorities, our system enhances data privacy, reducing personally identifiable information (PII) disclosure by 80% while ensuring compliance with AML and GDPR regulations. The integration of zk-SNARKs enables trustless identity verification with an average proof generation time of 12.5 seconds, significantly reducing the 3-5 day verification period required by traditional systems. Smart contract-based KYC automation eliminates intermediaries, cutting compliance costs by 40% and reducing fraud risk by 60%. Through comparative analysis, we highlight that decentralized KYC improves security, cost-effectiveness, and scalability compared to traditional models. Performance evaluation confirms that transaction throughput remains within acceptable blockchain limits, with gas costs stabilized at 35,000-55,000 Gwei per verification request. Despite challenges in regulatory adaptation and zk-SNARK scalability, the proposed model demonstrates the feasibility of Web3-driven identity management for trustless, privacy-preserving, and compliant financial ecosystems.
DOI Link
ISSN
Publisher
Association for Computing Machinery (ACM)
Volume
20
Issue
1
Disciplines
Business | Computer Sciences
Keywords
Web3, decentralized finance (DeFi), identity management, KYC, self-sovereign identity (SSI), blockchain, smart contracts, zero-knowledge proofs (ZKPs), fintech security, digital identity verification
Creative Commons License
This work is licensed under a Creative Commons Attribution 4.0 International License.
Recommended Citation
Arshad, Usama; Tubaishat, Abdallah; Anwar, Sajid; Halim, Zahid; Abualkishik, Abedallah; and Ullah, Abrar, "Web3-Based Identity and KYC Innovations for Next-Generation FinTech" (2025). All Works. 7892.
https://zuscholars.zu.ac.ae/works/7892
Indexed in Scopus
no
Open Access
yes
Open Access Type
Hybrid: This publication is openly available in a subscription-based journal/series