Features of the development of KYC technology

KYC technology stands for know your customer. KYC is a procedure for verifying personal data. For the verification procedure to be successful, the client must present documents confirming his identity. The client must provide all information during registration or in case of changes in personal information.

Before KYC verification is implemented in all crypto exchanges under the new policy, some exchanges use KYC verification to provide additional services to users. For example, large cryptocurrency exchanges allow users to use only the primary benefits of a crypto exchange. The user must pass verification to access the extended deposit and withdrawal limit. In this article, you will learn what does kyc mean in crypto and the main features of the development and implementation of technology in various processes.

How is the KYC procedure carried out?

This procedure is divided into two main stages, including the collection and verification of data. In addition, user monitoring belongs to the main stages of KYC verification.

All stages of KYC verification in detail are as follows:

1. The customer identification program is one of the most essential parts of KYC verification. The main task of this program is to collect and verify customer data. Customer identification usually occurs during registration.

2. Customer due diligence is a more advanced customer due diligence, the primary purpose of which is risk assessment. Due diligence is aimed at determining whether the client has been involved in financial fraud.

3. Constant monitoring – at this stage of the verification, the relevance of the verification data is checked, and the analysis of operations that arouse suspicion is carried out. During this procedure, transactions to countries related to terrorism are tracked. Based on the check results, the crypto exchange may freeze the account and notify the relevant authorities about the problem.

It is essential to carefully familiarize yourself with all the stages of KYC implementation to use technological solutions to achieve your goals competently.

Why move to Blockchain-based KYC technologies?

Blockchain technologies enable fast, efficient, accurate, and secure compliance. Blockchain-based KYC solutions for banks are essential for financial institutions dealing with cryptocurrencies: building an automated platform that prevents cyber threats, provides improved real-time verification, enhances customer onboarding service, simplifies transactions, improves regulatory compliance, and continuously monitors employees and business clients for risk assessment and data analysis.

How does the use of Blockchain for KYC help cryptocurrencies develop?

Decentralized management, anonymity, and customer protection are the main principles of the crypto industry. KYC procedures only eliminate some of the benefits of decentralized crypto markets. They protect users and their assets on crypto platforms, performing the same function as the banking sector in financial crime prevention.

Blockchain principles – immutability of records, increased privacy, a decentralized ledger that simplifies access to information, and increases transparency, trust, and data security – should be used for KYC procedures to make them more efficient.

The standardization and exchange of information when opening accounts on the Blockchain establish unified KYC records that are protected from unauthorized access. The combined efforts make Blockchain a vital tool for KYC processes that enforce anti-money laundering (AML) regulations.

Benefits of Blockchain-Based KYC Solutions

Blockchain opens up new prospects and opportunities for development in the banking sector:

• Unified system of general data. The Blockchain architecture can consolidate data from multiple service providers into a single decentralized cryptographic system. Unlike manual KYC procedures, verification and authentication are performed without the participation of third parties. Organizations can share KYC. Thus, the Blockchain architecture forms a common data ledger in which users must go through the KYC procedure to verify their identity only once.

• Distributed ledger. Blockchain technology creates a distributed ledger that stores information about trusted identities that all users on the network can use. This removes the single authority and vulnerabilities inherent in the client/server model.

• Database immutability. Blockchain electronic databases have built-in immutability, which makes storing identities more secure.

• Reliable security. The level of protection that protects personal data has been increased in all areas related to data verification.

• Network decentralization. Exclusive control is eliminated as the data is stored in a decentralized network. Users can only access it with special permission, which minimizes illegal activities.

• Standardized procedures. All financial market participants follow the same processes. Encoding KYC in smart contracts standardizes KYC procedures, reduces errors, and prevents data loss.

• Efficient operations. Digitalization, standardization, and automation reduce the time spent on KYC efficiency procedures.

• Reduced number of errors. Human error is eliminated from the process.

• The fight against crime. Blockchain technology can detect fraud and reduce losses.

• Transparency. Confidence in the financial sector is growing.

• Risk reduction. Prevent or reduce the risk of violating legal requirements by KYC automation service providers.

All the advantages described above make it possible to profitably use verification technology to implement the security and speed of processing personal data.

Steps to Implement Blockchain-Based KYC Solutions for Banks

The Blockchain-based KYC architecture provides transparency while improving the security of data storage. The KYC procedures are carried out as follows. A user needing a banking service, such as obtaining a loan, submits documents to the bank, and the bank initiates the KYC procedure.

All participants in the Blockchain system (government agencies, banks, and others) are responsible for collecting and storing the user's personal information in the decentralized network.

After the automatic verification, the bank confirms that the user has passed the KYC verification (documents are valid, and the information provided is correct) and enters the customer details into the Blockchain platform. Since all network members can access the system, the parties can control and regulate the entire KYC process.

The system itself tracks changes and updates user data. If the system detects a rule violation, the system notifies all parties.

Suppose a user opens an account with another bank. In that case, that bank uses the decentralized system to verify the customer's identity (instead of entering the user's information and verifying it again).

Users can log in with a private key to verify their identity and exchange data. All processes with access to personal information can only be performed with the client's consent.

Final Thoughts

The current manual digital KYC procedures, with many inaccuracies and a high risk of data theft, could be more effective. Thus, financial technology institutions sought innovative data storage and security methods.

Blockchain-based KYC is proving to be a reasonable solution. This reduces the time required for KYC, increases the security of personal data, prevents unauthorized access to data, and provides opportunities for the rapid detection of illegal schemes.

The use of KYC in cryptocurrencies is difficult to evaluate. It is a genuinely efficient decentralized technology that helps simplify managing personal data for finance. Conducting user checks allows you to reduce the risk of personal data theft by fraudsters, ensures the instant execution of all crucial operations, and increases the level of security for everyone. It is essential to carefully read the available solutions to use them to meet individual needs. Also, you should check the latest news about AI and KYC.