Why Blockchain is a good solution for KYC verification

With the creation of blockchain technology, many traditional systems have become outdated and are due for an upgrade. Blockchain has demonstrated its capabilities with the conception of virtual currencies such as Bitcoin and Ethereum, which have completely revolutionised the global currency system. By linking blockchain-based applications, Dapps (Decentralised Applications), to smart contracts, you are able to greatly improve the efficiency and security of an existing system, which in turn reduces the overall costs for companies.

An individual’s identity can easily be verified by government-issued documents such as drivers’ licenses, social security cards or passports. However, establishing an authentication factor of other identification sources bears a major challenge for organisations. Flaws in the security of such systems has led to repeated cases of financial fraud and money laundering.

Establishing KYC (Know Your Customer) processes within an organisation is a required, tedious procedure. In addition to the large amounts of paperwork associated with such procedures, a lack of transparency regarding the use of the personal data that is collected from customers has led to inefficiencies in collating public data.

Global efforts to combat money laundering and financial crimes has become costly for both governments and financial firms. Statistics show that in 2016, firms spent approximately $10 Billion USD on anti-money laundering (AML) compliance alone. As a result of this, the financial services sector has been looking for a new solution to the identity problem and it is only now that a viable solution has arrived in the form of blockchain.

Blockchain will allow for an accumulation of data from multiple authoritative service providers into one single, cryptographically secured database. KYC verification through this type of architecture has the ability to be faster, more secure and more efficient than current verification procedures. Which in turn should hopefully gain the trust of the general public.

By introducing blockchain solutions to handle the KYC process, data will be available on a decentralised network and can therefore be accessed by third parties directly after permission has been given. This KYC system will also offer better data security by ensuring that data access is only made after confirmation or permission is received from the relevant authority, eliminating the chance of unauthorised access. This concept of blockchain based KYC platforms is already being implemented by IT giants such as IBM, but will smaller institutions feel the need to use the blockchain or will they stick to the more traditional verification procedures?

Government bodies also aim to benefit from the adoption of the blockchain as risk officers will have better access to data, making the relationship between the financial sectors and regulators more transparent. This provides the provision for a massive reduction in financial fraud and crimes in the long term. Only time will tell what the true impact of blockchain technology will be on the KYC process. I would love to hear your thoughts on this topic, do you think that using the blockchain for KYC verification is a good idea?