Blockchain is an excellent tool to protect information on the Internet – it allows to store them in open databases in the cloud, while providing guarantees of authenticity and security. It is also possible solution to the “Know Your Client” – known as “KYC” procedure. In this article you will look how blockchain in Know Your Customer technology may change clients, business and government.
Blockchain is an irreplaceable tool that protects information posted on the Internet. It stores them in a database in the cloud while providing security and authenticity. Check how blockchain technology will affect the KYC procedure, users and business owners.
Traditional KYC system
Documents like passport, ID card, birth certificate or driving license determines an identity of human.However, it passes the exam only during personal contact. Confirmation of a remote identity can be done by sending e.g. a copy of a document. The established KYC procedure reduced the risk of fraud. Despite of that, it was associated with the extension of the verification time and became less transparent regarding the use of personal data. Downside of this procedure is a need to repeat the activity, which means interception of transferred data.
KYC systems on blockchain
DTL and blockchain technology enables to collect information from different clients to one safe base. Thanks to this, user has to go through the KYC procedure only once. Then he will be able to use the platform to confirm his identity. What will the procedure look like?
- A user sends the necessary documents to go through the KYC procedure.
- Service provider enters data to the blockchain platform
- If user wants to use another service, the service provider downloads its data from the system.
To enable the other party to access data, the user have to give consent by logging in to the system.
Improvements of blockchain in Know Your Customer technology
Every KYC tools, based on blockchain, will increase the security of personal data in industries where the identity verification process is in use. Check out what are the other advantages of these systems.
User data storing
At the moment, banks, financial sectors and the government store information in centralized systems. When they are needed they go to the company (from the KYC repository) that asked for access to them. Blockchain in Know Your Customer technology will ensure that data will be stored in a decentralized network. Furthermore, users or the authorized person using a special card will provide access to them. As a result, the security of personal data will increase and there will be no unauthorized access to data.
Minimizing the number of errors and frauds
The KYC procedure in traditional system is carried out by one company. It means a centralization of the process, which leads to the risk of hacker’s attack, illegal use of data and errors. The introduction of a decentralized system ensures the stability of recorded data and the unification of rules. Moreover, standardization and automation of processes protect against errors, violations of rights and eliminates the probability of monopolisation.
Improving the quality of KYC data
Data storage in centralized repositories involves low quality data – there is often a risk of errors, false information etc. The more users are in the system – the more inaccuracies appear. The KYC system based on decentralized registry will provide access to all data on one platform. The result will be a standardization process and elimination of a need to interact with other users. Therefore, level of data security will increase, and their quality will improve.
Blockchain in Know Your Customer technology – improving communication
The traditional KYC system prevents the control of dancy by a user who has no information on the procedures necessary to pass and delete information. There is lack of transparency and control. Moreover, the blockchain solution will allow users to present clear operating principles. It will increase the level of mutual trust, eliminate unnecessary verification process, level of fraud and increase operational efficiency.
Application of blockchain in Know Your Customer technology
Where blockchain technology in KYC will work out? Primarily in government institutions, to proof of identity for paying benefits or tax. It will be appropriate if you are checking age or confirming your identity at border crossings. Furthermore, secure and straightforward form of the identification card will make the verification time shorter significantly.
If you want to know something more about blockchain and cryptocurrency – check out Blockchain in insurance industry. Is it possible to make it better? or another of our articles.