According to reports from the Wall Street Journal, in the year 2017, over 16.7 million people in the U.S were victims of identity fraud. These numbers only represent the cases that were reported. Most of the time, individuals have no idea that their digital identities have been compromised until they attempt to purchase a property or take a loan only to find that their financial lives are in ruins.
Today, the number of organizations equipped with a proactive fraud detection and prevention mechanism for their electronic records is quite low. Take the case of financial institutions — A recent survey of banking institutions discovered that only 16 percent of credit card companies were reported to have a fraud detection mechanism in place to detect fraudulent events in real time.
There is a significant need for an identity protection mechanism that is reliable and immutable at the same time. This is where Blockchain is the real game-changer. The BLOCKCHAIN based identity management system can create a secure and permission-based framework wherein identity information can be stored away in an auditable block and only authorized parties will have access to it and all authorized personnel would know who does what with the stored information.
The immutable property of the Blockchain ledger is what allows the individuals to take charge of all the information tied to their identity and ensure its accuracy over time. For instance, since there isn’t a universally accepted digital equivalent for offline identities, such as a passport or a drivers license, people are issued with a unique set of identifiers for every single application they use. This results in a sprawling web of private information that ends users struggle to keep track of.
With the help of decentralized identities (DiDs), individuals can retain complete control over their data. DiDs are basically a secret URL which is stored on a blockchain ledger, with each being assigned to different details of a user’s identity, such as their name, birthdate and social security number. Using a digital wallet app on their smartphone or desktop, users will have the power to temporarily grant access to the DiDs of their choosing.
When you sign up on a new website or app today, you will have to share your name, email id, and other basic information. With DiDs, the process is faster and more secure. The app that asks for your credentials will display a QR code which you would scan and your digital wallet app automatically transfers your relevant DiDs over the blockchain, and the app would then grant access.
The fragments of one’s identity such as home address, job title, and phone number always keep changing and this can complicate individual privacy because it is possible for a single identifier to become associated with more than one person at different times. For instance, if you get married and change your last name then you have to change it on your passport, driver’s license, bank accounts and what not. The process takes months and causes a lot of stress. A Blockchain-based identity management system allows individuals to swiftly update these details. When the data is updated, the services using DiD automatically will update your info through a process that is much more secure.
Integrating KYC and unique identity system
Money laundering is one of the major issues faced by banking institutions and fintech companies as it shifts economic power from the legitimate stakeholders to criminals. With the KYC process being enormously time-consuming at times, financial enterprises need to find ways that can help them to keep up with the AML regulations.
By integrating the KYC process on the blockchain based identity management system, financial organizations can make sure that the information entered on the ledgers cannot be edited but only updated. This information, that has been submitted by the user, is available to everyone with the key to view because of blockchain’s feature of transparency. Financial institutions will be able to monitor the customers’ transactions. In addition to that, financial institutions that identify fraudulent transactions will be able to notify other financial institutions globally of the same, thereby preventing more fraudulent activities. This way companies can make sure that their KYC processes are completed as soon as possible and that their AML regulations compliance is up to the mark.
The blockchain based identity management system is essentially the best way to create a fraud-free identity management and access control system for organizations and public enterprises. Being resistant to fraud and ready for audits at any point makes it an ideal tool to offer decentralized services directly to end users without having an intermediary or verification unit in between.