
// Blockchain
Blockchain for Know Your Customer (KYC): Use Cases
// Blockchain
Blockchain is an excellent tool for protecting information on the Internet, because it allows you to store it in open cloud databases and at the same time provides guarantees of authenticity and security. That as well as possible approaches for procedure "Know your client", or "KYC". In the article, we will look at how the new technology will change KYC and what users, business and government will receive from it.
A person’s identity can be easily established using state-issued documents, such as a passport, birth certificate, social security card, or driver’s license. However, this method is good only with personal contact. If you need to confirm the identity of a person at a distance, it is easy to get around it by acquiring the original or a copy of the desired document.
To reduce the risks of such fraud, the procedure «Know Your Client» was invented. It significantly increased the reliability of identity verification, but made the verification process itself inefficient, long and non-transparent in terms of using personal and business user data.
The traditional KYC procedure usually includes three elements:
The distribution book technology (DLT) and the blockchain architecture allows you to collect information from various service providers into a single cryptographically secure and unchanging database that does not need a third party to verify the authenticity of the information. Due to this, it is possible to create a system where the user will only need to go through the KYC procedure once and then use this platform to confirm his identity.
A similar concept of the blockchain-based KYC platform has already found practical implementation. The most famous example is the joint project of IBM, Deutsche Bank, HSBC, the Mitsubishi UFJ financial group (MUFG) and the Treasuries of Cargill, which provides an efficient, safe and decentralized mechanism for checking, collecting, storing, updating KYC data and sharing them.
KYC utilities based on blockchain technology will help save money and increase the security of personal data in any industry where identity verification is needed. Let's take a closer look at exactly what the advantages of such systems are.
How it is. Currently, the financial, banking, government and other sectors collect and store personal user data in centralized systems (repositories). Every time someone needs access to this data, they are sent from the repository of the KYC service provider to the devices of the company that requested access to the data.
How it will be with the blockchain. Personal data will be collected by individual participants (banks, government agencies, companies or users themselves) and stored in a decentralized network. Access to the data will be provided directly by users or third parties who will have appropriate permission to do so.
In this case, it will be possible to provide access not to the personal data of the user, but to a special identification card that certifies the successful completion of the procedure. Thus, personal data will be protected, and third parties will be able to verify the identity of their client.
What are the benefits:
How it will be with the blockchain. Routing of working KYC processes can be coded into smart contracts and standardized for all industries. In such an ecosystem, data exchange will be as reliable as cash transactions in cryptocurrency payment systems Bitcoin or Ethereum are reliable.
What are the benefits:
This approach increases the risks:
What are the benefits:
This is a direct consequence of the lack of uniform standards in the industry, as well as the fact that banks, companies, start-ups, government agencies and KYC service providers use different approaches to storing and transferring data, different communication protocols, API, platforms and data management systems.
How it will be with the blockchain. A KYC solution based on a decentralized distribution registry will allow you to create a system where data would be stored on one platform accessible to all. This will automatically lead to industry standardization and will make most interactions between participants unnecessary - there is no point in exchanging information if all of it is recorded on the blockchain, to which everyone has access.
What are the benefits:
How it will be with the blockchain. The combination of an open source platform, which in itself is a source of truth, with smart contracts allows you to build a system of relationships where all participants will know the rules of the game and all participants will be sure that no one can break or circumvent these rules.
What are the benefits:
How it will be with the blockchain. Thanks to a shared distributed ledger and smart contracts, the KYC process can be easily regulated and controlled by all parties. Any change or update of customer data will be monitored by the system, and if someone breaks the rules, it will become known to all parties.
What are the benefits:
The most promising examples of using KYC on the blockchain are:
#2: ASEAN Association Project. OCBC Bank, HSBC Singapore and Mitsubishi UFJ Financial Group (MUFG) together with the Infocomm Media Development Authority (IMDA) became the first consortium in Southeast Asia to successfully complete the blockchain concept for the KYC procedure. This is a corporate solution for the banking sector, developed with the participation and on the basis of IBM technologies.
#3: uPort. Open identification infrastructure created with a focus on ordinary users. The platform allows anyone to create an account, verify their own identity, request and send credentials, sign transactions and securely manage keys and data. The system was developed on the Ethereum blockchain, and its main platform is mobile devices.
#4: Cambridge Blockchain. The digital identity system, which became famous due to the fact that this is the first blockchain-start-up in which PayPal invested. The project is based on the blockchain, sharpened by identity verification according to the rules of KYC and laws like the European “General Data Protection Regulations” (GDPR).
#5: KYC-Chain. White label Ethereum-based B2B solution. The platform distributes responsibilities between “trusted custodians” who verify, authorize and issue digital documents. There is built-in support for basic KYC templates, sanction checking and support for various platforms.