Blockchain and KYC

Is India's KYC system as near as you can get to imagined Blockchain-based KYC, without really having it implemented on Blockchain technology?

I have pondering on this question for last several months and haven't been able to say that it does not. KYC-AML has been one of the first talked about use cases of the blockchain. Proponents have counted several benefits of the same and also justified how blockchain will easily get rid of the inefficiencies of the existing KYC process. However, when you look at how KYC has taken its shape in India, most of these inefficiencies are already gone.

Let's look at various benefits that we believe blockchain will bring to KYC process.

Blockchain’s DLT will enable permissioned nodes (the participating banks) to access, edit, contribute and validate user data in a trustless environment.

- If we compare it with India's KYC process, where KRAs (KYC Registry Agencies) such as CVL, and NDML are registered with SEBI. These KRAs maintains the KYC of each individual and member institutions can access this data for a particular consumer, as required. However, yes, 'trustless' could be an important aspect here, even though we know when these entities are duly regulated and governed.

Smart contracts on a Blockchain will enable automation of KYC and AML controls while performing data validation checks.

- The basic functionality of these Smart contracts is already included in the KRAs process, where each record has various triggers and notifies the parties whenever it requires more information to be updated on that record. However, not sure, what else these Smart Contracts of Blockchain-based KYC would do.

Cryptography (Private keys and encryption) would segregate and restrict client data to the appropriate viewers with data privacy and transfer laws enforced by code.

- This feature is already in place. With Aadhaar based biometric, and other 2-factor authentication in place, consumers can restrict who should have access to their KYC data. Regarding encryption, it can also be implemented on existing set-up and blockchain is not really required to do just that.

The immutable, permissioned and distributed nature of the database removes the single point of failure for cyber attacks.

- This is a genuine benefit of KYC, however, KRAs already maintain the history of individual's records to ensure all the changes can be traced back to the source and actor of changes. They have also built required redundancy to ensure there one system is not a single point of failure. And if we trust KRA, immutability may not be a big issue here.