Using Blockchain to Improve KYC Processes for Web3 Businesses • TechCrunch
There is no way for blockchain-based businesses, financial service providers or banks to bypass Know Your Customer (KYC) processes. But existing KYC solutions that have been developed over the years, such as manual and online identity verification, video and biometrics, have their drawbacks, including high risk of errors and duplication.
With the adoption of blockchain technologies, businesses are realizing that there are better, more efficient KYC solutions that allow them to avoid having to collect and store personal information.
Not your run-of-the-mill KYC solution
As blockchain technology matures, many people are looking towards decentralized identity or self-sovereign identity as an ideal – people will gain control over their digital identities and they will avoid having to provide excessive, unwarranted information.
Mechanisms already exist to help us achieve this ideal. In web3, physical assets will eventually be owned by someone, but a purely digital relationship between buyer and seller will not be sufficient. There must also be a physical relationship so that a buyer has a legal right of appeal to get this physical asset – a complexity most people are looking for.
Choose a provider that is open about what they do with their data and confirm that they do all the checks you need.
This is 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, companies working towards becoming more decentralized should not need this level of information, nor should they require custody of an individual’s tokens. Companies must be able to easily and reliably confirm that an account or digital wallet that interacts with them has been verified.
There are a variety of off-chain KYC solutions that come with different capabilities and price points. The difference comes down to what level of detail and scale a company needs. The main disadvantage of all these operations is the storage requirement from a regulatory perspective. Often, KYC and AML (anti-money laundering) details need to be stored for a certain period of time to meet reporting standards and in case of irregularities. This constitutes a major weakness in the system, as a company’s customer data is stored by multiple parties whose cyber security mechanisms may vary in effectiveness.
