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The creation of blockchain technology has outdated existing systems and is due for the upgrade. Blockchain has demonstrated its capabilities of virtual currencies like bitcoin and Ethereum, which have completely overruled the global currency system. To improve the efficiency and security of the existing system, decentralized applications can be linked with smart contracts, which even reduce the overall costs of companies. Any individual’s identity can be verified by government-issued documents. It becomes a challenge for the organizations to establish an authentication factor for others identification sources. Errors in the security of such systems have led to financial fraud and money laundering.
Establishing KYC (Know Your Customer) within an organization is a slow and a lengthy procedure. Though large amounts of paperwork are associated with these procedures, lack of transparency is a concern raised regarding the personal data collected from customers leading to inefficiencies in combining public data. Blockchain technology has allowed the creation of a distributed ledger which is shared with all the users on the network. This implies that there wouldn’t be one single authority in the client/server model to access the data on network. The blockchain databases have an inbuilt property of unmodifiable information which makes the data trustworthy. The blockchain databases are reliable; hence the government and companies could depend on the data completely.
A KYC utility system based on blockchain technology will enable both the financial and banking sectors to enrich the process of identification. Our data is collected and stored in a centralized system, and access to this data needs KYC providers to share the client information with the companies needing to access it. Blockchain-based KYC system also offers better security ensuring that data can be accessed only after the confirmation is received from the relevant authority. This will prevent the unauthorized access and give individuals greater control over their data. As the client data collection increases on daily basis for different organizations, it is difficult to analyze the procured data through a manual process, and these enterprises are now looking for automated technologies. KYC policy standardization and ever-increasing data is being collected, which makes it possible for blockchain solutions to make use of smart contracts for the execution of control and operational processes.
Lastly, starting from the immutability of blockchain databases to their ability to improve transparency in customer identification will help reduce fraud attempts. The public and government sectors will have better access to data so that the relationship between financial sectors and regulators will be transparent. This results in a massive reduction of financial fraud and crimes in a long time.