The Role of Zero-Knowledge Proofs in Blockchain-Based Property Transactions to Ensure Data Privacy and Compliance with UK Regulations

Abstract

Property transactions in the UK are increasingly adopting blockchain technology to enhance efficiency, transparency, and security. However, the inherent transparency of blockchain raises significant data privacy risks and regulatory compliance challenges, particularly under the UK General Data Protection Regulation (UK GDPR). This study examines the role of Zero-Knowledge Proofs (ZKPs) in addressing these concerns by enabling transaction validation while preserving confidentiality. Using entropy measures, k-anonymity analysis, and logistic regression, this research quantitatively assesses the privacy risks, effectiveness of ZKPs, and regulatory acceptance in blockchain-based property transactions. The findings reveal that 65.5% of transactions remain highly or moderately identifiable, posing privacy vulnerabilities under UK data protection laws. ZKP-enabled transactions significantly enhance confidentiality, achieving a 92.5% transaction privacy score, compared to 48.3% for non-ZKP transactions. However, these privacy gains come at a 67.8% increase in transaction costs, highlighting a critical trade-off between security and efficiency. Regulatory approval rates for ZKP-based blockchain platforms stand at 72.5%, suggesting a strong potential for compliance advantages. While ZKPs improve privacy and regulatory alignment, challenges remain in terms of computational overhead, transaction costs, and adoption barriers. To facilitate large-scale implementation, this study recommends optimizing zk-Rollups for efficiency, developing clear policy frameworks, and enhancing collaboration between regulators, industry stakeholders, and blockchain developers. These steps are essential to ensuring a balance between privacy, scalability, and compliance, paving the way for secure and legally sound blockchain-based property transactions in the UK.