Coinbase Pushes ZKP for Privacy and US Regulations

Coinbase is urging US regulators to update the Bank Secrecy Act (BSA), a law regulating the financial system in the US, to include Zero-Knowledge Proofs (ZKPs).

The company stated in a post on 4 August that this cryptographic tool could represent the perfect balance between user privacy and regulatory transparency.

Paul Grewal, Chief Legal Officer of Coinbase, said:

"The know-your-customer (KYC) requirements that financial institutions must adhere to date back decades and, as a result, unnecessarily put the personal data of tens of millions of law-abiding US citizens at risk."

Grewal added that most KYC information collected by financial institutions ends up stored in centralised databases. These databases, he pointed out, have become "increasingly attractive targets for malicious actors." Moreover, much of this KYC data is not even used, despite its enormous value.

Coinbase proposes a solution to this problem, outlined in the blog post, in the form of ZKP. This cryptographic tool allows users to prove specific attributes without revealing any data. The company is calling on regulators to adopt ZKPs to track compliant transactions.

It is possible to create ZKP-based 'proofs' for attributes such as age, identity or financial information, and allow automated access to such proofs for specific transactions of interest to government agencies. This would eliminate the need to unnecessarily expose consumer data.

"Current regulatory models are designed to collect too much data and use too little, putting tens of millions of law-abiding Americans at risk in an effort to target a minority of malicious actors. ZKPs offer an opportunity to turn this model on its head," the legal department reiterated.

Shares of Coinbase could be a good buy

The share price of Coinbase has come under the spotlight of analysts following its second-quarter report, which disappointed expectations and caused the stock to drop more than 10 per cent from its intraday high on 3 August.

Mark Palmer, Senior Research Analyst at Benchmark, in a note to investors also published on 4 August, said that Coinbase's shares represent a buying opportunity.

Palmer believes that sales by short-term traders are behind the drop, which "now offers an attractive entry point for long-term investors." He explained that Coinbase has several catalysts for a bullish trend in the medium term.

Between these:

• the partnership with Circle (creator of USDC),
• the growth of its prime brokerage platform,
• a greater institutional presence in crypto services,
• and the development of a 'super app', an all-in-one application for trading, payments, access to DeFi products and more. Coinbase is aiming to become the new crypto 'super app' in the US.

Palmer also noted that Coinbase is building infrastructure to support access to decentralised exchanges (DEX), which will allow traders to access more tokens and additional trading options.

Benchmark assigns a 'Buy' rating to Coinbase's stock, with a target price of $421.