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Identity verification is a fundamental part of everyday activities. People need it in banks, workspaces, educational institutions, and healthcare facilities. But the traditional identity verification system is broken due to error-prone mechanisms, long delays, data silos, and non-compliance risks.
Summary
- Traditional identity verification is plagued by errors, delays, and disjointed data systems, leading to rising identity theft and poor user experiences with repetitive KYC checks.
- By encrypting data off-chain and storing verification hashes on-chain, blockchain-based systems let users control their credentials while ensuring compliance, reducing friction, and preventing data leaks.
- From startups to enterprises, blockchain identity solutions offer affordable, automated, and auditable verification processes, enhancing efficiency, regulatory trust, and protection against deepfakes and fraud.
Businesses, both big and small, are increasingly relying on emerging tech innovations like blockchains to verify the identities of employees, customers, students, patients, and others. Since blockchains serve as a permissionless, immutable ledger to securely store data, they’re automating verification systems with real-time checks and cryptographically-protected information.
The legacy verification system is problematic
According to the U.S. Federal Trade Commission, there were more than 1.1 million reports of identity theft in 2024, with fraud amounting to $12.5 billion. With the advent of AI-led deepfakes, identity verification has become even more challenging.
A year ago, OnlyFake generated realistic-looking fake driver’s licenses and passports from 26 countries for just $15, with spoofed image metadata forging GPS location, date, and time. These AI-generated fake IDs successfully bypassed the KYC verification of popular crypto exchanges and financial service providers like OKX, Kraken, Bybit, Huobi, PayPal, and others.
The damages of identity theft go far beyond the financial domain. Per an Identity Theft Resource Centre report, identity theft has a severe emotional toll, with 25% of the victims contemplating suicide and over 70% re-victimized by cyber criminals. With 19% of consumers losing up to $1 million, victims often feel vulnerable, angry, and lose trust.
To regain the trust of users, businesses implement multi-layer verification procedures and perpetual KYC checks. Users are asked to upload their IDs and provide selfie proofs again and again. Although these ongoing monitoring systems are aimed at screening risks and mitigating them, they create fresh friction points between users and businesses.
On one hand, customers are frustrated with ‘double KYC’ checks and give up midway, with businesses losing revenue. On the other hand, regulators keep tightening the KYC-AML rules but fail to reconcile the data across disconnected systems. Consequently, the balance between compliance and user experience remains ever elusive.
The problem is further compounded for the 2.6 billion underprivileged population who don’t have access to the internet and cannot avail e-KYC. In the absence of identity verification systems and the lack of means to ascertain ‘who they are’, the very meaning of human existence is put to question.
Given the global scenario, businesses are adopting blockchains for identity verification. Emerging tech like blockchains empowers users to digitize, encrypt, and share their identities directly with the relevant authorities without any intermediaries, minimizing data theft and bolstering overall security.
Blockchains for identity verifications
Blockchains make identity verification more compliant and user-centric while securely sharing verified credentials and sensitive data across platforms. With blockchains, businesses can do away with unnecessary bottlenecks and streamline the onboarding process for employees, students, patients, and consumers without compromising on regulatory obligations. Simultaneously, users can maintain sovereign ownership of their data and choose which data to share or the terms of reusing/re-verifying them.
Unlike consortium-based identity verification systems, some blockchain-based protocols adopt a decentralized approach where sensitive data is cryptographically encrypted and stored off-chain while the hashes live on-chain. Subsequently, users can prove the authenticity of their credentials without endlessly going back and forth to verify their identities.
Therefore, blockchains not only help protect users’ data sovereignty but also allow companies to maintain better control over their compliance policies. By enabling users to bypass repetitive identity verifications, businesses can make onboarding simpler and more accessible.
Blockchains have a democratic potential because businesses can customize their daily activities based on the scale of operations.
For example, small businesses can leverage blockchain-based solutions to achieve enterprise-grade capabilities without incurring huge costs. With affordable pricing tiers, blockchain can reduce administrative burden by automating repetitive tasks and freeing up the time of professionals who can focus on core functionalities.
Blockchains also streamline workflows for smaller teams while staying compliant with local regulatory guidelines. With a transparent and auditable verification service, blockchains make new and existing client screenings easier with seamless employment, educational, and criminal background checks.
Mid-size businesses that can’t operate with basic tools but also don’t have the resources to handle enterprise-level complexities also benefit from blockchains. The technology offers scalable verification systems that can grow with an expanding workforce and organizational infrastructure to enhance operational efficiency across departments.
Blockchains are ideal for these mid-level companies with comprehensive screening capacities for high-volume verifications and automated periodic checks. They are equally capable for enterprise-scale verifications with customized APIs, advanced compliance reporting, multi-party audit trails, and real-time disclosures.
The U.S. inventor and philosopher R. Buckminster Fuller once said, “Humanity is acquiring all the right technology for all the wrong reasons.” As the threat of deepfakes and identity theft looms large, blockchains offer a beacon of hope for users and businesses alike. They demonstrate how emerging technologies can be used for the ‘all the right reasons’ to verifiably prove humanity’s true identity across all domains of existence.
