Blockchain - Rescuing KYC post Aadhaar Verdict

For some in India's private sector, the Supreme Court's prohibition on privately owned businesses utilizing Aadhaar implies the time has come to reconsider business strategies. They may need to do so only temporarily, due to the pressure built by government Indeed, high-stakes legal and policy clashes have just started.

Impact on the private sector

After the Aadhaar judgment, private companies across sectors are looking at increased operational costs and changes to their business models, at least in the short to medium term. These progressions are not negligible and will affect the organizations as well as consumers and markets as a whole.

Here’s an example, Aadhaar-enabled KYC had a vast influence in Reliance Jio's story of overcoming adversity, which caused a gradually expanding influence over India's telecom sector, incorporating a sharp fall in service rates, even market union, and mergers. Presently, barring another law that empowers non-state entities to utilize the Aadhaar framework, disturbance at this scale sooner rather than later may turn out to be troublesome.

For the nation's digital payments industry, especially fintech startups Aadhaar-based verification helped minimize expenses. Startups are particularly delicate to operational expenses. The increased expenses of non-Aadhaar based KYC will now be met either by consuming investor capital or, more probable in the long haul, passing them on to the clients. In case of fintech firms, for example, cryptocurrency exchanges verifying users’ identity through Aadhaar was essential to counteract illicit trading.

Numerous customers such financial inclusion platforms serve may have no other method for verifying their identity, and the prohibition of Aadhaar as an identity confirmation system will mean abolition from such services through and through.

What’s the way forward?

In spite of the fact that the apex court has banned biometric-based e-KYC, there is no cause for alert among banks, telecom companies, and fin-tech firms, they can explore several available alternatives to Aadhaar-based authentication instead.

 

While other centralized solutions may alleviate some of the KYC challenges, the blockchain architecture will provide a modern and elegant way forward with immutability and security features that help provide greater trust in, and integrity of the data.

e-KYC is one of the strongest use cases of Blockchain where the digital identity of an individual is kept on blockchain and different service providers can make use of it.

Currently, establishments offering financial or professional services are obliged to pursue time-devouring and expensive practices for each new customer. The adoption of Blockchain technology can lead to the reduction of the KYC cost because of its cross-establishment client verification capacity and in addition to the effectiveness of observing and investigating data, required for KYC checks.

Distinguishing characteristics of Blockchain

Blockchain is an immutable technology and once data is verified and stored in the distributed database it can't be manipulated — just updated. The speed and ease with which blockchain enables participants to get useful and quality data make it very appealing to regulators, banks and law enforcement agencies around the globe.

 

1. Decentralized -

Blockchain is distributed and synchronized crosswise over huge systems; hence, it is suitable for advanced hierarchical business networks, for example, financial consortia or supply chains

 

2. No trusted Authority

Any centralized database is prone to get hacked and they demand trust in the third party to keep the database secure.
Blockchain overrides the need for a central authority by distributing data previously held in a centralized ledger over a network of computers.

3. Immutable Records:

Blockchain is inherently immutable — once recorded, data on the blockchain can't be changed retroactively without the alteration of every single subsequent block and a collusion of the network larger part.

 

4. Auditability

By design, blockchains are inherently resistant to alteration of any stored data. Practically, a blockchain can serve as an open, distributed ledger that can record transactions between two parties efficiently and in a verifiable and permanent way. Thus, one of the applications of blockchain is that it can be used as a source of verification for reported transactions.

  

Advantages of  Blockchain
If blockchain was used in place of Aadhar for identity verification, most of the concerns could be assuaged.

 

●      Increase speed from 3-4 weeks of onboarding time to 1 week or less by compressing data gathering and automating processes

●      Reduce costs decrease significantly costs to at least 20% less by eliminating duplication through shared services

●      Reduce risk via a redundant. distributed and shared ledger that acts as in immutable assured audit trail of all the corporate KYC processes.

●      Enhance experience via instant visibility across all shared information by customers, secured through a consent-based mechanism, which controls information access. 

 

 

Aadhar Vs Blockchain

Key challenges to Aadhaar

Since its inception, Aadhaar has been criticized as a project encompassing ample scope for forgery and fraud.

●       The fallibility of biometric data: A testimony has already been presented in court expressing that fingerprints can be replicated and the same has been demonstrated to the UIDAI too. Replicated fingerprints as passwords can be used to alter Aadhaar data with no notice to the end user and auditor.

●       The government has control over data, code, and tracking: Aadhaar is under control of the government through which it can track anyone's login patterns, representing a threat to the Right to Privacy, a fundamental right as per a recent judgment by the Supreme Court.

●       The effectiveness of linking Aadhaar with Direct Benefits Transfer (DBT): Leaked data can be used to alter already existing data linked with DBT. On the off chance that the central database is hacked, the entire system may crumble down affecting the nation's citizens on the loose.

 

On the other hand, Blockchain/Distributed ledger is immutable and distributed around multiple nodes. Unless 51% of the nodes are compromised all at one time, manipulation of the data becomes impossible. Highly improbable!
As per 2001 Sensex, India has 12% population under the age of five. Biometric authentication does not work since it keeps changing till the age of five and hence makes Aadhaar system inefficient in dealing such citizens data. Any data kept on Blockchain is immutable and hence will survive the time test!

 

eKYC platform on Blockchain

 

A blockchain-based Aadhar would help the database match the data protection stipulations outlined in the Right to Privacy judgment. It would allow for information to be collected and held transparently, with the consent of the individual whose information it is.

We can keep the hash of demographics as well as biometric data on to the blockchain. As part of the KYC verification process, whenever the service provider receives data from the CIDR, it can validate the hash of that data against the hash stored in the blockchain and hence can confirm the validity. This will make Aadhaar more transparent, despite the fact that all the user records are maintained centrally. Visit: https://aeries.io/services/blockchain/