Introduction

Blockchain technology, with its features of decentralization, immutability, and transparency, has triggered transformative impacts across industries such as finance, supply chains, and healthcare. Among these, transparency is one of the core characteristics of blockchain, enabling all participants to view on-chain transaction records and data, thereby ensuring trustworthiness and traceability. However, in this era where data is considered a valuable asset, users are becoming increasingly concerned with protecting their personal identity information. Therefore, under the premise of blockchain transparency, how to effectively safeguard user identity has become a critical issue to address during the technology’s development. This matter not only concerns individual privacy and security but also determines whether blockchain can be widely adopted and deeply integrated into various sectors.

Principles of Blockchain Technology

(1) Distributed Ledger and Transparency

At its core, blockchain is a distributed ledger technology that records data in a series of blocks, each containing transaction information within a specific time period. These blocks are connected chronologically to form an immutable chain. Unlike traditional centralized ledgers, the blockchain ledger is distributed across numerous nodes in the network, with each node having a full or partial copy of the ledger. This means that once data is recorded on the blockchain, it is widely disseminated and stored, making it accessible and verifiable by all participants—achieving data transparency. For example, in the Bitcoin blockchain, all transaction records are visible to every user on the network, and anyone can use a blockchain explorer to view the transaction history of a given address.

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(2) Consensus Mechanisms Ensure Data Consistency

To ensure consistency and accuracy of data across the distributed ledger, blockchain adopts various consensus mechanisms such as Proof of Work (PoW), Proof of Stake (PoS), and Practical Byzantine Fault Tolerance (PBFT). Taking Proof of Work as an example, miners compete to solve complex mathematical problems, and the first one to find the solution earns the right to create a new block and broadcast it to the network. Other nodes validate the block’s legitimacy and then add it to their own copy of the ledger. This mechanism allows the blockchain to achieve consensus across the network without centralized intervention, further reinforcing its transparency and reliability.

User Identity Protection Mechanism

(1) Application of Encryption Technologies

Asymmetric Encryption Algorithms: In blockchain systems, user identity is typically represented by a pair of public and private keys. The public key acts like a public address for receiving information or assets, while the private key is securely held by the user, similar to a password, and is used for signing transactions and verifying identity. For example, in the Ethereum blockchain, users sign transactions with their private key, creating a digital signature that includes the user’s identity information and a hash of the transaction content. Other nodes, upon receiving the transaction, use the sender’s public key to verify the signature. If the verification is successful, the transaction is considered authentic and initiated by the legitimate private key holder—ensuring the authenticity and integrity of the transaction without exposing the user’s real identity.

Hash Functions: Hash functions are also crucial for protecting user identity in blockchain. They convert data of any length into a fixed-length hash value, which is unique and irreversible. During user registration or transactions, the system can hash identity information (e.g., name, ID number) and store the resulting hash on the blockchain, rather than the original data. This means that even if blockchain data is publicly accessible, attackers cannot reverse-engineer the hash to retrieve the user’s real identity.

(2) Anonymization and Pseudonymization

Anonymous Transactions: Some blockchain projects focus on implementing anonymous transactions to protect user identity. For example, Monero uses technologies like ring signatures and stealth addresses to obscure the sender, recipient, and transaction amount. Ring signatures mix the public keys of multiple users to obscure the actual signer, while stealth addresses generate temporary addresses for each transaction to prevent traceability.

Pseudonymous Identities: Most blockchain systems allow users to transact without registering their real identity. Instead, they use a unique identifier (e.g., Ethereum address) to interact on the blockchain. This pseudonym is not directly tied to a real-world identity, allowing users to operate anonymously. Though transaction records are public, it’s difficult for outsiders to link a pseudonym to a real identity.

(3) Zero-Knowledge Proof (ZKP) Technology

Zero-knowledge proofs allow a prover to convince a verifier that a certain statement is true without revealing any supporting information. In blockchain, ZKPs can be used to verify that a user meets specific conditions or holds certain rights without exposing personal identity data. For example, a user can prove they are over 18 without disclosing their exact age or other personal details. This is achieved through mathematical operations and logical constructs that let the verifier confirm the claim’s validity without accessing actual data.

(4) Data Access Control

Permission-Based Access: Blockchain networks can implement access levels so that only nodes or users with the correct permissions can view specific identity data. For example, in enterprise blockchains, administrators may assign different data access levels to employees. Regular staff may only see job-related data, while executives access more sensitive information. This limits identity data exposure and reduces the risk of data breaches.

Smart Contract Control: Smart contracts are self-executing programs on the blockchain that can define access rules and procedures. Developers can use them to precisely control who can access and use user identity data under what conditions. For instance, a medical data sharing blockchain can define, via smart contracts, that only authorized medical institutions or doctors can access a patient’s records, and only within specified clinical contexts—protecting both data privacy and user identity.

Practical Case Studies

(1) Cross-Border Payment

Traditional cross-border payments involve multiple intermediaries, complex processes, and limited transparency, putting identity data at risk as it is passed between institutions. Blockchain-based solutions like Ripple utilize distributed ledger and encryption technologies to enable fast, low-cost international transfers. User identity is protected via encryption—only blockchain addresses are required, and no personal identity details are exposed. Meanwhile, the public nature of the blockchain ensures transaction traceability and trust.

(2) Decentralized Lending

On decentralized lending platforms like Compound, users can secure loans by collateralizing digital assets. The blockchain records borrowing behavior and asset information. Users are identified via public-private key pairs, and although transactions are publicly visible, the actual identities remain behind encrypted addresses. Smart contracts automatically execute lending protocols, ensuring secure fund flow while protecting user privacy.

(3) Privacy Protection in Healthcare

Medical records contain sensitive identity data like diagnoses and treatment history. Blockchain healthcare projects, such as Gem Health, aim to improve data management and privacy using blockchain. Patients store their medical records on the blockchain and use encryption and access control to determine who can view them. Temporary access rights can be granted to medical institutions, limiting data use to specific contexts and protecting patient privacy.

In clinical trials, large volumes of personal and trial data are involved. Blockchain enables secure sharing and management of this data. For instance, using zero-knowledge proofs, researchers can verify if a patient meets eligibility criteria without exposing identity data, ensuring both the validity of the research and the privacy of participants.

Challenges Ahead

Encryption Algorithm Security: Current encryption techniques offer identity protection, but rising computational power and the emergence of quantum computing may eventually compromise these algorithms.

Balancing Privacy and Performance: Advanced privacy-preserving methods like zero-knowledge proofs often demand significant computational resources, which can hinder blockchain performance and scalability. Complex ZKP computations may delay transaction confirmations and reduce efficiency. Optimization of ZKP algorithms and leveraging hardware accelerators (e.g., encryption chips) may help balance privacy and performance.

Lagging Legal and Regulatory Frameworks: Rapid blockchain development has outpaced legal frameworks concerning identity protection. Regulatory standards vary across regions, complicating cross-border blockchain applications and compliance.

Unclear User Rights and Responsibilities: Identity protection in blockchain involves multiple stakeholders—platform developers, node operators, users, etc. However, their respective responsibilities and rights are often ambiguous. For instance, in cases of identity breaches, determining liable parties and compensation protocols remains a challenge.