Source: news.google.com
There is no way for blockchain-based companies, 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 a high risk of error and duplication of effort.
With the advent of blockchain technologies, companies are realizing that there are better and 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 look to a decentralized identity or a sovereign identity as an ideal: people will gain control of their digital identities and avoid having to provide excessive and unwarranted information.
Mechanisms already exist to help us achieve that ideal. In web3, physical assets will eventually be owned by someone, but an exclusively digital relationship between buyer and seller will not cut it. There must also be a physical relationship for a buyer to have legal recourse to obtain this physical asset, a complexity most people overlook.
Select a provider that is transparent about what it does with your data and confirm that it is doing all the checks you need to.
That 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 to become more decentralized should not need this amount of information, nor should they require custody of a person’s tokens. Businesses need to be able to confirm in a simple and credible way that an account or digital wallet that interacts with them has been verified.
There are a multitude of off-chain KYC solutions that come with different capabilities and price points. The difference comes down to the level of detail and scale a business needs. The main drawback 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 comply with reporting standards and in case there are irregularities. This presents a major weakness in the system, as a company’s customer data is stored by multiple parties whose cybersecurity mechanisms can vary in effectiveness.
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