There’s no way for blockchain-based businesses, financial service providers or banks to bypass Know Your Customer (KYC) processes. However, existing KYC solutions that have been in development for many years, such as manual and online identity verification, video, and biometrics, all have disadvantages, including a high risk of errors and duplicates. repeated efforts.
With the advent of blockchain technology, companies are realizing that there are better, more efficient KYC solutions that help them avoid having to collect and store personal information.
Not your normal KYC solution
As blockchain technology matures, more people are moving towards decentralized identity or self-sovereign identity as an ideal — everyone will gain control of their digital identity and they will avoid having to provide information. superstitious, unwarranted.
Mechanisms already exist to help us achieve that ideal. In web3, physical assets will eventually be owned by someone, but a digital-only relationship between buyer and seller will not be enough. There must also be a physical relationship for the buyer to have legal recourse to acquire this physical property—a complication that most people are covering up.
Choose a provider that is transparent about what they do with their data and confirm that they are doing all the checks you need.
That’s where blockchain can be used to improve traditional KYC providers. Typical KYC processes require people to upload their proof of identity to a verifier. However, businesses that are aiming to become more decentralized don’t need this level of information, nor should they claim custody of one’s token. Businesses must be able to simply and reliably confirm that the account or digital wallet they interact with has been verified.
There are countless off-chain KYC solutions that come with different capabilities and price points. The difference depends on the level of detail and size a company needs. The main downside of all these operations is the storage requirement from a regulatory perspective. Normally, KYC and AML (anti-money laundering) details must be kept for a certain period of time to meet reporting standards and in case of anomalies. This represents a major weakness in the system, as a company’s customer data is stored by multiple parties whose cybersecurity mechanisms may differ in effectiveness.
