The Rise of Identity Management in the Cryptocurrency and Blockchain Space
By: Guest Author – Legal Counsel for Unspecified Bitcoin Organization
Published: September 20, 2018
Identity verification and access management are increasingly important as numerous companies begin to explore the possible uses of cryptocurrency and blockchain technology in their industries. Although anonymity is often boasted as an advantage to using these technologies, allowing users of cryptocurrency and blockchain to remain anonymous could result in the violation of state and federal regulations and potentially compromise an entire business.
Companies engaging in the sale or exchange of cryptocurrency are recognized as financial institutions by the Financial Crime Enforcement Network (“FinCEN”), and must enforce certain policies and procedures:
* Anti-Money Laundering (“AML”) Policies
* Know Your Customer (“KYC”) Policies
* Due Diligence Procedures
Enforcing these policies and procedures without identity verification is impossible. At minimum, a financial institution must obtain a government-issued identification document from a customer before allowing the customer to transact. The institution must then verify the authenticity of the document presented and ensure that the customer who provided the document is its true owner.
Even after the customer’s identity is verified, federal law requires financial institutions to manage customer access to ensure that only the customer uses his or her account. This is often done by two-factor authentication or by a user-created password. Integrating biometrics into password security is a step beyond either of these methods and is a highly effective way to control customer access.
Likewise, identity and access management are vital to the success of blockchain technology. The compilation of a mass amount of data means nothing if it is not linked back to an authentic source of identification.
To illustrate, the Bitcoin blockchain is a compilation of Bitcoin transactions, showing their dates, amounts, and destination wallets. To an ordinary person, the Bitcoin blockchain is simply a large spreadsheet of numbers. However, if a Bitcoin wallet address is linked to a specific person, one could view that person’s every Bitcoin transaction on the blockchain. With the added factor of identification, the blockchain now has exponentially more valuable meaning.
The Bitcoin blockchain is a public ledger, meaning any person can access it. Companies that utilize blockchain technology may not want their data to be accessible by the public and must find a way to control who accesses it. Controlling access to internal blockchains can protect the integrity of the data and ensure that its accuracy is not compromised.
Identity verification and access management play a significant role in the use of cryptocurrency and blockchain technology. BioSig-ID’s identity verification and biometric security software can aid companies in the use of these technologies by helping them maintain AML & KYC compliance and protect sensitive internal data.
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