London seminar explores blockchain identity applications in finance

A seminar was held during the ‘Identity & KYC Conference’ in London to discuss the use of区块链技术to improve know your customer (KYC) processes.

Blockchain compliance consultant Siân Jones moderated the session, which also included participants from banks, financial institutions, startups and regulators.

They discussed several challenges facing banks and financial institutions when it comes to identity proofing and whether blockchain technology can help solve these problems. They ultimately reached an overwhelming consensus that, while blockchain technology is promising, there are many real-world limitations when it comes to identity proofing.

The discussion was exploratory in nature, focusing on the needs of current financial industry participants and exploring the potential uses of blockchain technology.

KYC goes beyond simple identity verification

The panel discussed the impact on the financial industry of the trend away from government-issued ID cards such as passports and driver's licenses. Attendees sought to explore more comprehensive data sets around personal identification, ranging from shopping history to utility connections to personal identity assessments.

These third-party data points have become an important source of identity information beyond simple ID systems and are becoming increasingly popular in the financial industry, supplementing the information provided by the government. These data points are also more vague in nature, giving a "probability score" to indicate how confident the algorithm is about her identity.

This trend is expected to accelerate in the future, and simple identity proof mechanisms will become less and less important to financial institutions.

An identity put on a blockchain, such as a tokenized version of a driver’s license, may not be sufficient for most businesses and financial institutions. Therefore, all blockchain solutions require collecting available personal information from third parties, a problem that is more difficult for blockchain.

The downsides of blockchain

The financial industry faces many challenges in identity verification, and some of them are very difficult to solve. When the issuance of identity verification is first carried out by the government or financial institutions, the initial loading process of identity information on the blockchain still faces challenges.

This is true across the globe, with a significant portion of the developing world not even having any form of government-issued identification.

The reliability of all identity proofs, whether on a blockchain or externally, is likely to be tied to the authority that issued it. For example, an identity proof verified and issued by the UK government is likely to be more reliable than one issued by a bank in Somalia.

Advantages of blockchain identity

Using blockchain identities has several advantages, especially in a context where personally identifiable information can be quickly disseminated around the world.

The advantages of blockchain identity are particularly evident in situations where someone’s identity is stolen and needs to be revoked and reissued. For example, if your passport is stolen, the issuing country can replace the stolen passport, but it will take more time for financial institutions in another country to obtain the revoked status of the identity. However, blockchain can make this process quick and efficient.

Additionally, blockchain-based identity systems may be able to selectively reveal personally identifiable information, which could help deter identity thieves and improve end-user privacy.

Large institutions could also gain efficiencies by issuing blockchain-based identity documents, especially since many verification processes are currently duplicated.

While identity is not currently an issue facing the IoT industry, several organizations are investigating the role digital identity will play when identity is no longer limited to individuals and legally defined entities but includes physical objects.

Blockchain looks like an effective solution capable of handling these large-scale identities that need to be shared among multiple stakeholders.

Starting point

While many financial institutions are exploring blockchain technology for identity solutions, many of the rules and regulations surrounding KYC and identity for regulated financial firms presume a government-issued ID as a prerequisite. Therefore, the use of blockchain for identity will need to start with government groups issuing some form of identity on the blockchain.

However, there are still many unresolved issues in this process, from privacy to access. For example, although an identity document, such as a passport, is issued to an individual, it does not legally belong to the individual.

It is not yet clear how identity data will be owned on a blockchain, and whether an individual or an identity authority will ultimately own the identity and the identity data.

As Jones puts it:

“The fundamental challenge with identity is that the intentions of the various players are not aligned. Governments, businesses and individuals all have conflicting interests.”