Although the terms Blockchain and Bitcoin are used interchangeably, their features and characteristics are quite different. While Bitcoin has given a new meaning to money, the foundation of Blockchain’s technology may very well be responsible for the most important invention of our time. Blockchain technology itself has been evolving considerably since this post was first written and published, it is truly outstanding to see everything come to life!
Blockchain is often thought of as a distributed ledger to help record and process transactions, however, it has many other key applications, namely its ability to be used in facilitating Know your customer (KYC) efforts. KYC is a service embedded in financial institutions that helps them with, 1) screening and privatizing their users’ confidential information (irrespective of the user being classified as an individual or a stand-alone company), and 2) helps protect their intellectual property from prying eyes and fraudulent profiles. If you are looking for an identity management solution built on blockchain technology and one that has helped accelerate multiple fundraising initiatives for multiple cryptocurrency projects, you can check out Civic.
How the Blockchain Provides Identity Screening and KYC
Although current KYC processes have been recently optimized with the aid of technology, the legacy procedures are expensive, cumbersome to install and maintain, and most of all are centralized via single entity. On the other hand, if a distributed ledger like the Blockchain is implemented as a form of screening and approval module, companies can greatly benefit. Some of the advantages of this implementation include but are not limited to: anonymization of individual or company profiles in a decentralized ledger that is outside of the control of a single entity, the information is completely unforgeable, the per user screening and processing speed is drastically reduced, and if configured correctly, the graphical user interface used can be high in ‘user-friendliness’ and ‘user experience’. There are many ways for companies to accomplish such a feat, one being (reminder: we at @Blockchain Academic are product agnostic, we maintain crypto objectivity and neutrality) that regions around the globe can begin to issue digitally authorized certificates. Now that these certificates are published on the Blockchain, they would of course be immutable and the information would not be alterable, but even more importantly, once the certificates are verified on the Blockchain, they can be viewed publicly by anyone who is interested in accessing that information privately. To be clear, the only information that would be viewable publicly would be a cryptographic acknowledgment that the digital authorized certificates are valid and alive.
Building upon this vision further, as more and more user identity information is published on the Blockchain, its distributed ledger will strengthen limitlessly. Some examples of relevant identity information are: new account opening, new mortgage application, a Facebook profile is opened etc. Imagine the possibilities if companies and users had access to a standard interoperable protocol that allowed them to communicate in a common language. Both companies and end users would have the peace of mind that the information collected is secure and has not been modified opportunistically.
As more and more identity artifacts and digital articles are published on the Blockchain, the stronger and more secure the Blockchain becomes. Building an identity in this way allows everything to be done easily by an individual, encourages interconnectivity, and discourages a fraudulent behavior. This is an important value proposition for financial institutions, as it will not only allow them to know who their customers really are but also makes tracing criminal activity much easier; one the important design elements of the Blockchain is the ability to provide transparency, traceability, and origin/destination information for all users with no exception, i.e. in the case of a fraudulent financial transaction, companies will know exactly where the funds were being transferred ‘from’ and ‘to’.
KYC-CHAIN is an emerging technology which is aimed at keeping regulators satisfied with enhanced procedures that are smart while providing businesses with a smooth and efficient process to help provide end users with the ability to finally maintain their online privacy.
KYC-CHAIN which is built on the Blockchain, leverages smart contract technology to provide consensus on the identity of individuals. This high level of trust brings a new level of ease and simplicity to the process of onboarding new customers for businesses and financial service providers, while also helping enforcement of compliance standards.
Advantages Of The Blockchain For Identity Screening And KYC
In conclusion, the application of the Blockchain for identity protection and KYC has the following advantages;
- Transparency of the end to end process; the entire process is transparent and auditable by neutral regulatory third parties. This is possible because for the first time in the history of computing, identity consensus can be made on the Blockchain without compromising customer information.
- Privacy and confidentiality of data; by allowing customers to own a personal or private key to decrypt (access) their data, it gives those same customers the ability to decide what information they are willing to share vs. keep private. In addition, it offers them a license to grant advanced user access privileges; this function is equally powerful in rejecting access to criminals.
- No local infrastructure; since all the processing, computational work, and private data are stored on the Blockchain (which again is an immutable and carved in stone distributed ledger), companies do not need to invest in neither local file servers nor technology resources (i.e. database administrators, business continuity and disaster recovery planning experts, emergency response procedures, RAID or any other form of data storage virtualization technology). The Blockchain will do the heavy computational lifting and provide that ‘reliable, always available’ offering.
What do you think? Is there anything else related to KYC that should be mentioned? Please don’t be shy, we don’t bite! Post a comment and let us know. We would genuinely love to hear from you, e-mail us at [email protected]!