The financial industry requires a difficult balance between data-driven innovation and the foundational need for privacy and regulatory compliance. Public blockchains offer transparency but expose sensitive commercial data, making them unsuitable for most institutional use. Private blockchains create regulatory and compliance problems for financial services firms.
At the Money20/20 conference in Amsterdam, Fahmi Syed, President of the Midnight Foundation, sat down with MANSA co-founder Nkiru Uwaje to discuss a new approach to resolve this tension: rational privacy. “Privacy is a fundamental human and digital right,” Syed stated, “yet in our current systems, users give everything away just to participate.”
Rational privacy is customizable: it uses programmable privacy and selective disclosure to allow firms to verify data without revealing the data publicly, creating a system built for real-world financial operations.
How selective disclosure works in practice
Rational privacy is built on the concept of selective disclosure, a technique enabled by zero-knowledge (ZK) proofs. A ZK proof allows anyone to prove a specific statement is true without revealing the underlying personal data. This directly applies to streamlining mandatory compliance tasks like Know Your Customer (KYC) checks in financial services.
This solves a critical business problem by preserving the privacy of clients, which in turn reduces the risk and liability for the institutions storing that data. Syed highlighted the social barrier that excessive transparency on public blockchains creates. “Ask people to share their name or job title and most will do it. Ask them to reveal their income or assets and the room goes silent,” he pointed out. “Yet traditional blockchains make every transaction permanent and public. That’s a barrier to real-world adoption.”
Making advanced cryptography accessible to developers
ZKPs are powerful privacy tools, but can be technically challenging to implement. This difficulty has historically been a significant barrier to their adoption. A key part of Midnight’s strategy is to solve this developer-experience problem.
Midnight uses Compact, a domain-specific language based on TypeScript, which is a language familiar to millions of developers. Compact abstracts away much of the underlying cryptographic complexity. This design allows development teams to build privacy-enhancing applications without needing teams of specialized cryptographers. This has the potential to shorten development cycles and lower the barrier to entry for enterprises. “We want to make it easy for developers to build privacy-preserving applications and easy for enterprises to adopt blockchain, without needing to overhaul their infrastructure or governance,” Syed said.
Designed for a multi-chain world
The future of blockchain with Midnight is a thriving multi-chain ecosystem, where different networks with specialized strengths complement each other. With this in mind, Midnight is designed for interoperability.
This means Midnight will be designed to enable a privacy layer for DApps on other blockchains. A development team could build its core application on any network and integrate Midnight’s technology specifically for privacy-enhancing features. The benefits of a public blockchain can be enhanced with privacy where it is expected by users or required by regulators.
“Blockchains don’t have to be bifurcated between public and private,” Syed explained. “Midnight enables a spectrum—where privacy is programmable, rational, and aligned with existing regulatory expectations." This approach avoids locking developers into a single ecosystem and allows them to combine the best features of different chains without rebuilding their infrastructure from the ground up.
A new architecture for financial services
Rational privacy aims to provide the technical foundation that is both innovative and regulatory compliant. Enabling programmable privacy creates a path for institutions to use blockchain technology without compromising on confidentiality or regulatory requirements.
This control, based on a framework of rational privacy, is a necessary step for the maturation of a blockchain-powered financial ecosystem. “The future of finance isn’t just faster or cheaper, it’s fairer,” concluded Syed. “And that starts by giving people back control of their data.”