As governments, businesses, and educational institutions are turning to blockchain as a proven way to enable a secure and trusted infrastructure and improve services, D/Bond is introducing its decentralised identity (D/ID) know-your-customer (KYC) solution. Several KYC challenges have emerged over time. They include those necessitated by evolving technology and regulatory frameworks, onboarding process, risk, and data management among others.
Evolving and with a propensity for growth, decentralised identity is emerging as a technology to meet these challenges. Listed in the first category (immersive experiences) of the three main themes in which Gartner fits such emerging technologies for 2022, the top tech research consultancy firm expects decentralised identity and other technologies like non-fungible token (NFT) and Web3 — -which it says are disruptive by nature and designed to help enterprise architecture and technology innovation leaders — -to greatly impact business and society over the next two to 10 years. Hence it suggests in its Hype Cycle for Emerging Tech 2022 the critical need to understand the potential use cases and their paths to mainstream adoption.
D/ID leverages blockchain and other elements such as digital wallets to offer a one-time ID verification for all use cases.
Why On-chain KYC
Despite the growth of decentralised finance (DeFi) as an emerging financial technology that challenges the current traditional finance system, most DeFi protocols do not have a sound KYC solution. Once at an all-time high total value locked of $259.41 billion, DeFi market participants have traded, lent, borrowed, staked, and farmed assets freely with no KYC and other personal information required to engage in financial transactions over the past years.
A plethora of Ponzi schemes sprung up along the line, too. the lack of proper KYC structures exposed DeFi users to various forms of fraud including rug pulls. London-based blockchain analysis firm, Elliptic, put the total loss to such at over $12 billion as of 2021.
These happened because DeFi is built to be self-directed. Users interact with DeFi protocols directly and move funds from one point on the blockchain to the other on the premise that blockchains record every transaction on their immutable ledgers and the built-in transparency they exhibit is supposedly acting as a check on fraud.
However, what is missing is the fact that every seen transaction does not have an identity attached to them. Most of the stolen funds cannot be traced to malicious players because their addresses are without any KYC information.
The recurrence of these thefts and fraud harms trust and sets back efforts to attract institutions into the DeFi ecosystem. Its emergence to operate within global regulatory stipulations is also hurt as crypto stakeholders strive to balance it out with regulators. A KYC mechanism could attach real identities to wallets, thereby deterring fraud and making it easier to trace transactions to a source as a necessity for the market to grow into a global ecosystem. Introducing a KYC option that ensures this, as well as cater for users’ data protection is desired.
To meet the growing demand for the on-chain ID verification market — -projected to be worth $18.6 billion by 2026 — our ERC-3475-backed technology that enables anyone to create their own custom-made bonds is offering a universal KYC solution. Based on a D/ID standard — the first on-chain KYC standard on Ethereum — that operates as an on-chain ZK ID identification, our ID verification solution for Web2 and Web3 applications provides users with only the information that proves the owner of an ID without granting access to additional information without the appropriate authorisation.
This is key.
At the moment, most ID verification processes without D/ID have to go through repetitive steps that expose unprotected personal data and cost more to execute. The processes not being decentralised also means that they have a central point of control (as centralised entities are typically run by human users), making them susceptible to various forms of human negligence and error.
It employs ZK Proof through which the identity of the prover is proven true without revealing any information or sensitive personal data. Aside from the data protection, the built-in KYC solution with ERC-6595 enables an easy-to-use signature that replaces the verification process thus saving costs and preventing the risks of error of humans in the process.
Our built-in modifier for DeFi applications helps impose KYC restrictions for protocols and is programmed to be destructible in the event of a private key leak.
In the Web3 era, in particular, where the development of decentralised web applications would be the main focus, putting users back in control of their identity, data, and associated attributes, is going to be key.