There is no way for blockchain-based companies, financial services companies or banks to bypass Know Your Customer (KYC) processes. But existing KYC solutions developed over the years, such as manual and online identity verification, video and biometrics, have their drawbacks, including a high risk of errors and duplication.
With the advent of blockchain technologies, companies are realizing that there are better, more efficient KYC solutions that can help them avoid collecting and storing personal information.
Not your run-of-the-mill KYC solution
As blockchain technology matures, many people look to a decentralized identity or self-sovereign identity as an ideal – people will take control of their digital identities and they will avoid having to provide excessive, unwarranted information.
Mechanisms already exist to help us achieve that ideal. In web3, physical assets will ultimately belong to someone, but a digital-only relationship between the buyer and seller is not enough. There must also be a physical relationship so that a buyer has legal means of obtaining this physical asset – a complexity most people gloss over.
Select a provider that is transparent about what they do with their data and confirm that they have 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 ID to a verifier. However, companies working to become more decentralized should not need this amount of information, nor the custody of anyone’s tokens. Businesses need to be able to easily and credibly confirm that any account or digital wallet that communicates with them has been verified.
There is a large number of off-chain KYC solutions with different capabilities and price ranges. The difference comes down to the level of detail and scale that a business needs. The major drawback of all these operations is the storage requirement from a regulatory point of view. Often, KYC and AML (anti-money laundering) data must be retained for a period of time to meet reporting standards and in case there are irregularities. This represents a major weakness in the system, as a company’s customer data is stored by multiple parties whose cybersecurity mechanisms can vary in effectiveness.
Janice has been with businesskinda for 5 years, writing copy for client websites, blog posts, EDMs and other mediums to engage readers and encourage action. By collaborating with clients, our SEO manager and the wider businesskinda team, Janice seeks to understand an audience before creating memorable, persuasive copy.