In this day and age, document verification is an integral requirement to carry out various types of transactions. The procedure is necessary to build trust between participating entities to ensure that people are who they claim they are. A typical practice of online document verification involves tallying users’ submitted information against public databases and watchlists. Traditional document verification has been subject to abuse due to its inherent loopholes.
Blockchain is a new player in the arena of storing and verifying information through a database that is open and self-correcting. It has gained a lot of momentum in a short time due to its security and ease of usage.
Shortcomings of Traditional Documents Verification System
Traditional document verification system has been around for a while so people with malicious intent know how to manipulate it for their gain. There were recorded incidents of people getting through these conventional security checks and having their way with the system, including money laundering, terrorism financing, and so on.
The shortcomings of identity document verification system stem from two things;
- Counterfeit Identities
The fact that fake IDs are ubiquitous and system breaches are always on the rise point to the inherent poor security of the current systems. Hackers can introduce malware with ease and take control of the system to manipulate the data inside a presumably secure and closed system. This throws a dependable online document verification system out of the window.
The cost of documents verification through conventional means is too high for the enterprises, both governmental and private, to halt all people with false credentials to get into the system. This has led to compromises in AML and KYC compliance guidelines leading to reputational damages and monetary fines.
What Is Blockchain?
In simple terms, a blockchain is a new take on a database’s structure and accessibility. Typically, databases are in the form of tables for easy access and data manipulation. However, in blockchain, each new set of information is stored in a block and then that block is chained to the preceding block, making a consecutive chain of transactions. It is a peer-to-peer system with no intermediary.
What ensures the security of information on the blockchain is that no one has control of existing information in the blockchain, so no one can temper it. When new information is added to a block, it is run through credentials of previous entries throughout the network to determine its legitimacy. In a blockchain, there is no room for counterfeits.
Current & Potential Use Cases
With this much security and transparency, it was only natural for blockchain systems to be adopted across a wide range of industries. Many are still hesitating to switch because of the compliance vacuum and “perceived uncertainty” around it, but blockchain has proved to be standing its ground since its inception almost a decade ago.
Bitcoin had little success in the beginning but then took the world by storm when large corporations were attracted to its lucrative market value and projections. It uses blockchain technology to store and verify the identity of buyers and sellers and makes it impossible to temper through encrypted time-stamping.
BFSI (Banking, Financial Services, Insurance)
Banking is one of the most intensely regulated industries right now, and for good reason. Due to its ability to assimilate and generate wealth, people often use banking and financial institutions for illicit gains.
Blockchain can be a great tool for document verification for the BFSI sector. When a new document is added to a blockchain, it will convert the document into a permanent cryptographic hash. When that same document is submitted again, it will be seconded by the earlier entry with the same hash and markers.
This offers a cost-effective and efficient way for identity verification documents. The same goes for any industry with KYC compliance regimes to avoid regulatory reprimands.
With a decentralized system that is accessible to all users, healthcare stands to benefit a lot from blockchain document verification of the patients. It gives more control to the practitioners to know the identity and history of the patients and then prescribe proper treatment.
Blockchain can also come in handy for document verification in the education sector. Instead of solely issuing paper-based degrees and certificates, institutions can also add credentials to a blockchain network. This way, when a recruiter wants to go through a verification of a document, it will be easier to verify it through the cryptographic hash and the time stamp.
A vast majority of the European Payments Council are of the view that blockchain will fundamentally alter the industry in the next five years. Blockchain is a highly sophisticated technology with immense potential for application across a wide range of industries, such as education, healthcare, insurance, and so on.
With its intrinsic security and linear structure, it can be used as an exceptional document verification solution. It cuts down the time and cost for institutions that are subjected to compliance regulations for document verification.