As it turns out, many problems with digital identity management may be addressed by using blockchain technology. People will be able to pick and choose among whom they disclose their digital ID because of the system’s decentralization, trustlessness, tamper-proof structure, as well as strong digital signatures.
Nevertheless, due to the lack of obvious options for identity verification on the blockchain, the community has split in two.
Members of the public who utilize blockchains including Bitcoin and Ethereum do so because they value the anonymity it provides. On the contrary side, business applications have gravitated toward privatized and federated deployments of blockchain, which are gated systems that provide the security of knowing with whomever one does commerce. In this article, we’ll investigate several fundamental ideas:
Verifying People’s Identities: A Major Obstacle In Financial Regulation
Managing identities is a major challenge when it comes to becoming compliant. FICO, a software statistics organization, recently surveyed 172 banks and found that almost half of them found manual identification confirmation methods to be difficult.
The continuous drive toward digitization, spurred by the COVID-19 dilemma, only serves to compound the difficulty of this problem. The Payment Service Directive 2 in Europe imposes stricter obligations on banking institutions to ensure identification and lessen the likelihood of fraudulent transactions.
However, regulations and rules cannot be seen in a vacuum and do not provide a workable answer to the problems of handling paper-based records in a rapidly online realm. As a result, financial institutions are racing to create their respective digital identification systems.
This CBDC Urgency
As work continues on central bank digital currencies (CBDCs), there will be a greater need for electronic identification systems in the banking industry. A fundamental issue that has yet to be settled is or not blockchains can be used to create CBDCs.
But the European Central Bank has recognized that overcoming the trade-offs between security and confidentiality is among the final obstacles to CBDC adoption. No regulatory body would ever approve of a method that makes it possible to funnel money utilizing cryptocurrencies.
However, privacy concerns arise when a central bank monitors the financial dealings of every individual.
Getting Past The Security Vs. Identification Deadlock
The Concordium corporate blockchain technology is progressing rapidly toward resolving the privacy vs. identification trade-off. Concordium runs on a public blockchain methodology incorporates to give companies the confidence they need to meet their legal responsibilities without sacrificing customer confidentiality.
The project’s technical stack now includes an identification layer. Users must undertake an off-chain validation to establish a profile on the system, and they can operate with total secrecy due to zero-knowledge evidence. The Concordium Foundation engages a reputable third party who may allow the disclosure of the off-chain identification in response to a reasonable demand from a legal body seeking information about the identity of the person responsible for a particular trade.
Will Cryptographers Make a Deal?
Concordium could be successful in selling the benefits of an open identification management solution to businesses, however what about the cryptocurrency community’s most privacy-conscious users? Over the last several years, crypto companies have conceded a significant amount of ground to authorities. For example, the FATF traveling regulation requires cryptocurrency trading to conduct know-your-customer inspections.
If the owners of cryptocurrency exchanges wish to prevent a similar fate, they may find that a secure identity management solution is an acceptable middle ground, as it may safeguard the right to operate cryptocurrency enterprises in countries with strict regulations, such as the United States and Japan. According to profit builder trading app, investors should be mindful about picking companies where “your personal information and financial data are fully protected by high-level technology”.
However, the increasing possibility of blockchain compatibility may further highlight the requirement for a decentralized identification system. Cross-chain trades make it possible for clients to move tokens across exchanges. If authorities come to believe that blockchains may be used to launder criminal cash, this adaptability might make them more apprehensive of the anonymous nature of blockchains.
To Sum Up
When it all comes down to it, the big issue is whether or not blockchain pioneers will be able to establish themselves in the epicenter of the movement toward an online footprint.
Many advantages may be gained by storing digital IDs on a distributed ledger. Even then, the advantages of trustlessness and openness that occur with utilizing public works might well be lost if authorities and business coalitions keep developing their alternatives.
