Analysing Decentralized Identity Solutions For KYC/AML Compliance

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INTRODUCTION

KYC is an acronym which stands for Know Your Customer and it basically represents a process that is used in compliance to governmental guidelines and regulations by financial institutions and organizations, it is used to verify the identity of their clients, participants and users and as a result it prevents and deter any illegal financial activities like money laundering, financing terrorist organizations, and fraud.

AML is also another acronym which basically stands for Anti Money Laundering, and it refers to the set or group of laws, regulations, and protocols that has been set in place in the algorithms of financial institutions and organizations, they help to preventing and catch individuals or criminal organizations from laundering money meaning disguising money or funds obtained illegally as legitimate or legal.

The traditional mechanisms and protocols used by the world have been doing a good job however, there is still room for improvement and to improve let us adopt and implement decentralized identity solutions, in this post of mine I am going to be explaining, discussing and analyzing some of the solutions and improvements in which the blockchain can offer through decentralized identity.

DECENTRALIZED KYC AGGREGATORS

Decentralized KYC (know your customers) aggregators are basically platforms that play the role of collecting and managing the know your customers information from different and multiple sources, these platforms are decentralized and operates on the blockchain technology and as such allowing for a more comprehensive, effective, accurate and efficient verification process which is also tamper proof and immutable.

Basically platforms like the KYC-AML Bridge allows financial institutions to access aggregated know your customer data and information which has been collected from different, multiple sources this platforms facilitate the reduction if not the elimination of the need for repeating checks over and over again and as a result improving the accuracy of anti money laundering process.

ZERO KNOWLEDGE PROOFS

Zero Knowledge Proofs are basically cryptographic protocols, techniques and algorithms that allow one party to prove to another the validity or authenticity of a value or statement, proving whether or not it is true or not without having to reveal any additional information, this zero knowledge proof protocol and algorithm can be used and implemented in the know your customer and the anti money laundering to verify the identity of a customer or the legitimacy of a transaction without revealing any of the users underlying data or information.

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Additionally, the zero knowledge proof can come in handy and particularly useful when dealing or handling data or information that can be compromising or has the potential to erode the privacy of users and clients, for example sensitive information like age, health and so on and so forth, and still be able to comply fully with the regulatory guidelines and requirements.

IMPLEMENTING BLOCKCHAIN BASED MECHANISMS

Another decentralized identity solution which the blockchain technology can offer to the know your customer and anti money laundering regulations is basically by offering blockchain technology, its features and advanced mechanisms, and through the creation and development of blockchain based KYC mechanisms the know your customers protocols and modes of operation are more secure and immutable.

Additionally, by basically using blockchain based mechanisms many financial institutions will be given on a platter the opportunity and ability to ensure that know your customer data and information is always up to date, verifiable, accurate and uncompromised as a result ensuring that every data and information of their users, customer and participant is stored safely with the blockchain immutable ledger therefore enhancing security.

DECENTRALIZED IDENTIFIERS

Decentralized Identifiers is basically another decentralized identity solution, the decentralized identifiers are basically a core and fundamental part and component of the decentralized identity systems, they can be said to be unique identifiers that are not tied or linked to any centralized registry, identity provider, or certificate authority.

The decentralized identifiers as the name implies is based on the blockchain technology and as such they registered on a distributed immutable ledger, if or when implemented in to the know your customer or anti money laundering protocols and processes of financial instructions whether centralized or decentralized, they allow for the verification of identity without requiring access to a centralized database.

Therefore with the application of decentralized identifiers, institutions can comply with KYC/AML regulations in a more secure and efficient way, they are still able to minimize the exposure of the sensitive data and information of their users and customers.

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CONCLUSION

In conclusion I would like to say a very big thank to everyone of my fellow steemians who have taken the time and made the effort to read and go through this post and drop meaningful comments, I hope that you have been able to learn something new as I have explained and discussed four significant decentralized identity solutions to the KYC/AML process and protocols for financial institutions.