KYC verification creates transparency and a sense of trust among a community of users. Everyone on the platform is aware that the other user was made part of this platform after vetting. Credentials used for user registration were checked with the help of identity verification services. Various platforms utilize different KYC services or even proprietary KYC software for complete identity verification. Blockchain technologies can be quoted as an apt example of a platform that has a lot to benefit from KYC identity verification.
Blockchain technology is a state of the art digital technology that allows for only secure access to centralized resources. The KYC service provider or AML Software Company collects personal information from end-users are at great risk of losing it during a data breach or hacking attack. In order to secure such a substantial dataset from falling into the wrong hands or simply getting exposed, there could be no better solution than blockchain. All the data collected from end-users can be stored into a blockchain where only limited persons can access it for analysis purposes for tracking users for research purposes.
KYC stands for Know Your Customer. It was introduced in 2002 and it has become a common practice for all banks and financial institutions. The main objective of the KYC is to verify the identity of the user, with the double purpose of protecting the user himself and the bank against attempts at corruption, online fraud, and money laundering practices.
What is KYC doing?
By identifying customers electronically, KYC prevents scammers from conducting malicious transactions, thus combating money laundering, ensuring the security of investors' assets, avoiding reputation and legal problems, and establishing credibility.
By accepting the service provider to verify the information necessary to eliminate the risk of fraud, users can simply protect themselves and their assets, as well as compliance with the procedures in question.
Blockchain technology is in itself considered an enclave as far as data security is concerned. Access to resources stored on the blockchain is restricted. This sense of data security and the huge potential presented by this security has contributed to the widespread adoption of blockchain across multiple industries. KYC based identity verifications add an additional layer of security in blockchain technology. It makes sure of the fact that everyone that has access to blockchain-based resources has the true identity that they are claiming to have.
These days, not only ordinary citizens are getting concerned about their data privacy, but the national governments have also become vigilant in this regard. Authorities have started issuing guidelines to ensure data security, especially for the data collected from users of online services. GDPR is a perfect example of such guidelines. Passed by the European Union, this legislation binds businesses to secure user data that they have collected to provide services to their clients. Businesses failing to comply with these guidelines can be fined up to millions of Euros. So clearly, KYC businesses operating inside the EU or even on a global level are prone to these strict guidelines. The blockchain serves to be the perfect answer to these official concerns regarding data collection and data safety.
How a typical company wants to operate KYC verifications for its blockchain technology depends on the regulatory guidelines and the intrinsic needs of that particular blockchain product. User information is mostly collected from end-users, and they are asked to display an appropriate identity document to corroborate their presented credentials. Driving licenses, identity cards, or passports are favored document formats to perform KYC verifications. In the case of address verifications, utility bills and bank statements are also admissible proof of address.
As explained earlier, blockchain is basically a centralized platform in which the access is limited to only a limited number of people. Just think of Facebook, but instead of openly logging in or signing up for its profile, you need to have personalized code that only you can enter to access your profile or set up a new account. Such is the way in which typical blockchain-based facebook will work. Now, as security of assets and data stored in those assets – not to mention the users who are using those assets – is essential to blockchain-based products, so KYC verification tends to be the perfect gatekeeper.
Experts are hoping that with rampant data breaches, compliances like GDPR focusing on user data rights and privacy based legislation, KYC and blockchain will become the favored medium to launch new technologies and make them air-tight against malicious attacks. KYC software has come a long way with modern-day technologies being incorporated into KYC verifications. Artificial intelligence, OCR based data extractions, and various other new trends have been made part of KYC based identity verification services.
Many tech companies that are working in blockchain technology have started partnering up with KYC services providers to eliminate the risk of encountering individuals with fake or doctored identities. It is high time that these two new upcoming trends of modern technologies teamed up to launch products that are not only safe to use but also protect the overall data rights of their users.
There is always a great debate going on regarding the fact that how blockchain can utilize KYC services and ICOs can get help from AML compliance solutions. But there is another interesting side to this story as well. KYC verification and AML Screening software also have a lot to benefit from blockchain as well. Especially with compliance guidelines such as GDPR, that require businesses to ensure the safety of user data or else they will be fined millions of euros in monetary penalties, KYC software can really take help from blockchain technology. Blockchain will give the necessary peace of mind to KYC verification and online identity verification solution providers that collect valuable personal information from end-users.