Blockchain offered a whole new way to have complete openness in transactions with full transparency. All transactions on blockchain can be seen through a single central-source ledger. This openness creates trust in a space where there is previously a trust deficit.
The blockchain ecosystem is transitioning to a Real World Asset (RWA) paradigm where assets like real estate, bonds, commercial paper, fin art, etc., will all be tokenised and placed onto a blockchain. In addition to this opportunity, there are many challenges to be addressed by the traditional financial services and crypto/byte-field ecosystem.
The first challenge is that RWAs represent actual individuals, corporations, or government entities that have legal obligations. The second challenge is that many individuals, corporations, and governments have valid concerns about how much data is available to the public on their RWAs; thus, a delicate balance must be maintained between privacy and transparency to enable the transition to RWA-based asset classes for all segments of society.
Understanding RWAs in Simple Terms
Tokens representing physical or traditional financial resources on a blockchain. They can be anything from Security tokens for real estate shares, through to government or corporation bonds, commodity tokens (e.g. Gold and Oil), carbon credits, and private credit invoices.
Moving these resources onto blockchain technology has enabled greater efficiency, accessibility and market liquidity, they retain their legal identity, record of ownership, and tax consequences – all of which were ably developed in the previous era of cryptocurrencies and tokens.
Why Transparency Was the Original Superpower of Blockchain
Transparency does not equal a flaw. Rather, transparency is the base of what blockchain technology represents. With public blockchains, it is possible for anyone to independently verify transactions, audit supply and asset movement, detect fraudulent activities and manipulation and build trust between parties without intermediaries.
For Real-World Assets (RWAs), providing transparency can help in the following areas:
provide proof of asset backing
prevent double spending or the creation of pretend tokens
improve investor confidence
enable real-time audit capabilities.
It would seem that when viewed from a theoretical reference, everything listing above should work. However, with complete transparency there exists the possibility of making transparency a liability.
When Transparency Becomes a Risk
During the RWA era, being totally open will lead to revealing a lot more than you intended. Here are some of the legitimate concerns:
Revealing an investors' position and strategy.
Exposing a company's treasury movements.
Linking your wallet address to your identity.
Making users potential targets for surveillance and attack.
While this level of exposure is unacceptable for corporations/institutions, it creates significant privacy and safety issues for individuals. At this point, the discussion changes from ideological to practical.
ERC-3643: Compliance-Ready Tokenization for Regulated Markets
ERC-3643 is an emerging token standard designed specifically for real-world asset (RWA) tokenization and regulated securities. Unlike traditional token standards that focus mainly on transferability, ERC-3643 embeds compliance directly into the token’s lifecycle.
It allows issuers to enforce identity checks, transfer restrictions, and jurisdictional rules at the smart contract level—making it highly relevant for institutions, funds, and enterprises entering blockchain-based finance.
In short, ERC-3643 bridges the gap between decentralized infrastructure and real-world regulatory requirements without sacrificing efficiency or transparency.
Enhancing Privacy and Trust with Zero-Knowledge Proofs (ZKPs)
Zero-Knowledge Proofs (ZKPs) play a critical role in balancing compliance with privacy. They enable participants to prove that they meet specific conditions—such as identity verification or eligibility—without revealing sensitive personal or financial data.
When combined with standards like ERC-3643, ZKPs allow compliant transactions to occur while keeping user information confidential. This approach strengthens trust, reduces data exposure risks, and supports scalable adoption of blockchain in regulated financial ecosystems.
The Privacy Problem in Tokenized Finance
The purpose of privacy isn't to conceal illegal activity; it is to safeguard sensitive data whilst adhering to regulations.
Within the traditional finance world, there are privacy features; bank accounts are not publicly visible and transaction records remain private. When you take these functions online and place them on a blockchain, however, they become entirely public unless there are additional privacy safeguards in place.
This tension may be particularly intense for Real World Assets, as they span different blockchain networks, laws and taxation as well as regulations.
Privacy Coins: A Lesson, Not a Solution
An early attempt to address privacy in blockchain was privacy coins. The intention behind privacy coins is to provide a method for concealing:
The amount of a transaction
The identities of each party involved in the transaction
The transaction history of the coins being exchanged
Although privacy coins have proven what is possible from a technological standpoint, their adoption has faced significant limitations through the actions of regulators. Regulators are concerned that complete anonymity would prevent them from being able to enforce compliance.
In the current era of Real World Asset projects, the level of risk associated with this is too great for many projects. Thus, privacy coins provided the entire ecosystem with an important lesson:
While complete anonymity may function effectively for native cryptocurrencies, the scalability of this model is limited when applied to regulated assets.
The Compliance Reality of RWAs
Real-world assets are not exempt from laws. In order to be valid, real-world assets must adhere to:
KYC (Know Your Customer) and AML (Anti-Money Laundering) regulations
Securities (stock market) laws
Tax reporting obligations and
Cross-border laws
This is where compliance is imperative for RWAs. For instance, as tax authorities expect specific clarity around crypto-based revenues, the Canada Revenue Agency has recently employed a task to apply tax treatment on all crypto-income activities when dealing with blockchain systems.
Real-world assets elevate this situation because RWAs often have significant capital volumes, and most RWAs are accounted for by financial institutions. Compliance is not optional.
The Core Challenge: Privacy vs Compliance
At first appearance, privacy and compliance appear to be opposite concepts. Privacy seeks to minimize the amount of data shared with external parties. Meanwhile, compliance requires complete traceability and accountability. However, this dichotomy is inaccurate. Instead, the focus should be on creating a system that allows for selective transparency.
Selective transparency consists of the ability to:
Share information only with people who are permitted to see it.
Show compliance without disclosing sensitive information.
Make public ledgers available for use but prevent their use for harassment or stalking.
Finding a way to achieve this balance will provide a strong foundation for the continued growth of RWA utilization.
Emerging Approaches to Privacy-Preserving Transparency
As the industry transitions from "completely public" to "completely private" there are new methods for providing trust through verification without disclosing unnecessary information about parties involved. The four major concepts are:
Authorize access to sensitive information
Provide cryptographic evidence rather than providing all data directly
Establish a view based on roles for regulators and auditors
Censure on-chain verification with off-chain confidentiality.
This combination of concepts enables RWAs to thrive in real-world economies as opposed to purely crypto-native environments.