Blockchain-based companies, financial service providers, and banks are unable to avoid Know Your Customer (KYC) procedures. However, the current KYC solutions that have been created over time, such as manual and online identity verification, video, and biometrics, have significant flaws, including a high risk of error and effort duplication.
With the development of blockchain technologies, businesses are recognizing that there are better, more effective KYC solutions available that allow them to do away with the need to gather and keep personal data.
As blockchain technology develops, many see decentralized identification or self-sovereign identity as the ideal, where individuals would be in charge of their digital identities and would not be required to submit excessive amounts of unjustified information.
To assist us in achieving that goal, mechanisms currently exist. In web3, tangible goods will eventually belong to someone, but a buyer-seller relationship that is solely digital won’t do. In order for a buyer to have legal recourse to obtain this physical asset, there must also be a physical relationship, which is a complexity that most people overlook.
Choose a provider who is open about how they use their data, and make sure they are performing all the necessary checks.
In this area, blockchain can outperform current KYC providers. People must upload their identity verification to a verifier as part of standard KYC procedures. However, organizations aiming to become more decentralized shouldn’t require this level of data or control of a person’s tokens. A digital wallet or account that interacts with a business must be able to easily and convincingly demonstrate that it has been confirmed.
Off-chain KYC solutions come in a variety of forms with various features and price ranges. The difference depends on the scale and level of detail that a corporation requires. From a regulatory perspective, the storage requirement is the main drawback of all these operations. To meet reporting requirements and in case of abnormalities, KYC and AML (anti-money laundering) details are frequently required to be maintained for a predetermined amount of time. Due to the fact that client data is maintained by numerous parties, each of whose cybersecurity measures may be ineffective, this poses a serious flaw in the system.