There is no way For blockchain-based companies, financial service providers, or banks to bypass Know Your Customer (KYC) processes. However, existing he KYC solutions that have been developed over the years, such as manual and online identity verification, video, and biometrics, have drawbacks, including a high risk of error and duplication of effort.
With the advent of blockchain technology, businesses are beginning to realize there are better and more efficient KYC solutions that can avoid collecting and storing personal information.
Not your run-of-the-mill KYC solution
As blockchain technology matures, many are looking to a decentralized or self-sovereign identity as the ideal. People will be able to control their digital identities and not have to provide excessive and unfair information.
Mechanisms for reaching that ideal already exist. With web3, physical assets end up in someone’s possession, but a digital-only relationship between buyers and sellers is not enough. A physical relationship is also required so that the purchaser can have the legal avenue to acquire this physical asset.
Choose a provider that is transparent about what they do with your data and make sure they have done all the necessary checks.
Blockchain can be used to improve traditional KYC providers. A typical KYC process requires you to upload your proof of identity to a verifier. However, a decentralized company should not need this level of information, nor should it need control over individual tokens. Businesses need to be able to easily and reliably confirm that a counterparty’s account or digital wallet has been verified.
There are many off-chain KYC solutions with different features and price points. The difference comes down to the level of detail and scale required by the enterprise. The main drawback of all these operations is the storage requirements from a regulatory perspective. In many cases, KYC and AML (anti-money laundering) details must be kept for a period of time to meet reporting standards and in case of fraud. A company’s customer data is stored by multiple parties, and their cybersecurity mechanisms vary in effectiveness.