KYC regulations seem to be a pain in the rear for most enterprises interested in exploring the blockchain sector. But there is a potential solution on the horizon in the form of Oraclize, which is working on a way to link real-life identities to Ethereum wallet addresses.
KYC: A Balancing Act in a Trustless World
Whenever somebody talks about KYC [Know-your-customer] protocols, it is not hard to see a centralized service or institution collecting user data and storing it somewhere safely. That last part is a topic of substantial debate in recent times, however, as the number of databases breaches and data leaks keeps growing every year.
Decentralizing the KYC protocol will be one of the biggest challenges of the past few years. But now the technology seems to be catching up. Accountability of all of the collected data is at the top of the priority list, and some Ethereum enthusiasts over at Oraclize (Oraclize.it) have come up with a concept that would actually link Ethereum wallet addresses to user identities.
However, there is a note to be made here, as the plan does not revolve around collecting this information and sending it to all parties making use of the decentralized solution. The E-Estonia citizenship initiative is a significant step* in this direction, as the digi-ID devices used can actually link a real identity to an Ethereum address. Doing so requires the usage of RSA signatures, which are then verified by an automated smart contract. While the possibilities of this technology are virtually limitless, it would certainly help solve the KYC issue in some way.
*[Note from the Author: RSA signature verification through an Ethereum smart contract is not possible just yet, but a feature making this possible is being discussed as we speak.]
Oraclize will fill in the missing pieces of the puzzle, as verifying the signatures alone is not sufficient. A smart contract is needed to link Ethereum addresses to the real identity. Moreover, a way has to be created for checking the certificate against the Certificate Revocation List to ensure the transmitted information is valid and legitimate.
Oraclize Has the Tools to Make it Happen
Filling in the missing pieces of the puzzle is one thing, but Oraclize has gone one step further. In fact, the company claims they have the tools ready to solve the KYC problem with a blockchain-based approach. The required smart contract to link an identity to an Ethereum wallet address is available, and there is a web UI too. Moreover, the contract is currently deployed on the Ethereum Morden testnet, and supports RSA signature checking in its current iteration.
But there is more, as Oraclize has a smart contract ready to link digital information from the Estonian digi-ID Certificate Revocation List as well. However, there is one drawback to this concept for now since it requires a lot of gas to execute the contract for productive use. A variation of this contract is currently under development, which aims to make the process affordable.
Even though there is a point to be made as to how the Estonian digi-ID concept was not designed for this particular purpose, it is still an interesting test case. This also goes to show how blockchain technology can bring interoperability to the table, which will help in developing new features, platforms, and solutions.
Given the stance of the ECB on e-governance right now, the Oraclize project could spark a new debate to revamp KYC and AML regulation. Certifying user identities seems to be their top priority right now, and this solution could facilitate the process in the future. However, the general blockchain community feels it is of the utmost importance to keep everything as decentralized as possible.
What are your thoughts on the idea of linking Ethereum addresses to a real life identity? Is this an opportunity worth exploring? Let us know in the comments below!
Images courtesy of Oraclize, Shutterstock