KYC and digital signature as a guarantee of legal security at DeCo
KYC is a banking and exchange regulation term for financial institutions and bookmakers, as well as other companies working with private money, meaning that they must identify and establish the identity of the counterparty before conducting a financial operation.
Introduction of the KYC principle has led to the gradual prohibition of the maintenance of anonymous bank accounts. It is because the anonymity and lack of central control over the cryptocurrency industry inevitably led to criminals using digital currencies to channel funds illegally.
Having groups of people or AIs controlling blockchains does not turn DeX into centralized systems but simply makes them controllable.
Does the introduction of KYC affect the number of DeFi participants?
With an increase in the number of platforms implementing KYC, the decentralization of cryptocurrency does not suffer, on the contrary, it helps to attract more users to digital currencies, encouraged by governments and institutions that seek to eliminate financial crime.
The digital platform Barter Smartplace introduces KYC into its work — thanks to this, the safety of users is significantly increased.
Electronic Digital Signature (EDS / ES) in DeCo
EDS is obtained as a result of cryptographic transformation of information using a private signature key in order to protect a document transmitted on various media or stored in digital form from falsification of the owner’s identification, signature key certificate, as well as setting the absence of distortion of information in the document.
At one time it was believed that EDS would correct the situation with complex identity checks, but they did not eliminate the need to verify the authenticity of documents within the framework of KYC procedures. In addition, a digital signature can be forged or stolen. The solution to this issue is smart contracts.
As a rule, checking papers, making phone calls, and requesting confirmation is a lot of time and effort. An even bigger problem is speeding up the process — some clerks simply put a stamp on the documents without checking them properly.
It often happens that bureaucratic reviews fail and more such revisions are followed. For example, according to a survey by Thomson Reuters, in 2017, KYC procedures in the banking sector took an average of 32 days (for comparison, in 2016 they took 28 days).
Blockchain can significantly speed up authentication. Commercial blockchain architects invented the term privileged nodes.
All the logic of privileged nodes can be programmed in a smart contract, adapting to the needs of companies. For example, you can register the return of a full package of documents or only valid documents that the company has agreed to provide.
The flexibility of smart contracts gives businesses the freedom of choice they need to thrive. For example, company B may refuse to provide a certain document to company A, but notify it that such a document exists and has been verified by a privileged node.
This approach also applies to the processing of consumer personal data, where the identity management process sits between anti-fraud and the General Data Protection Regulation (GDPR):
- on the one hand, a smart contract allows the bank to make sure that the credit history of a particular client is clean and verified by a competent authority, which is necessary to combat fraud;
- on the other hand, the organization does not need to keep information about it.
In addition, in smart contracts, you can configure the period of validity of the consent of company “B” for the provision of documents, after which the company “A” will no longer have access to them. However, you still need to keep track of what information gets into the “blocks” transmitted over the blockchain network. Even in the absence of the documents themselves, a distributed database must store some of their characteristics, such as checksums, hashes, and expiration dates. The availability of this information in a distributed ledger, along with information about requests and permissions, will allow KYC procedures from a few minutes to 2–3 hours.
We care about the security and convenience of our users on the network, that is why verification of the smart contract code is at the heart of our service.
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