Blockchain Technology Fixes the Loopholes of Centralized KYC Solutions
While several projects prefer to use centralized repositories to store data during Know Your Customer (KYC) procedures, these databases exhibit several limitations such as susceptibility to hacks and high cost of management, which can be mitigated by distributed ledger technology (DLT), reports TechRadar on May 14, 2019.
Centralized Databases are Weak
Per the report, several projects from times past till today have sought ways to build centralized KYC solutions that can manage customers’ data in the most efficient and safe manner while also minimizing identity theft.
In a bid to meet these demands, two models of KYC systems are often designed: the first is a silo model in which a central repository can be created and monetized by a company.
The second is a shared model owned by a group of companies who have come to the terms of an agreement that will be used to access data and exchange information.
Limitations of Centralized KYC Solutions
However, there are certain limitations inherent in centralized models irrespective of the Financial Action Task Force (FATF) jurisdictions where they are employed. The ease at which these systems can be hacked has made them fail woefully in ensuring that customer data is as safe as possible.
Similarly, the unsecured nature of centralized KYC databases has led to declining confidence in banks. It has also given people the impression that financial institutions are not as trusted as they have paraded themselves to be.
It does not also come as a surprise that a number of companies are more concerned about the profit that can be generated through the sales of KYC data instead of prioritizing their level of security.
Asides from the unsecured nature of data in a centralized repository, certain issues like who owns data and who can profit from such data arises. The latter is yet to be decided by the court and it is believed the law may allow those who create data to be its legal owners.
DLT to the Rescue
Despite these risks, a better way out is with the use of the distributed ledger technology, an automatic and decentralized database which allows customers to own their identity.
As an immutable ledger whose content cannot be changed, it promises a highly secure KYC system over the use of centralized models thereby allowing millions of personal records to be stored in an efficient way.
Consequently, KYC3 and Peer Mountain have collaborated to design a Decentralized KYC (DKYC) that will enable customers to carry out their KYC once and then use it on different platforms instead of having to repeat the same processes over and over again.
In related news, BTCManager on December 5, 2018, informed France-based companies are have tested R3‘s proof-of-concept blockchain solution for KYC