KYC (Know Your Customer) and AML (Anti-Money Laundering) are regulatory requirements that financial institutions must follow to prevent money laundering, terrorism financing, and other financial crimes. With the rise of web3 and blockchain technology, there is a need to apply KYC/AML regulations to ensure compliance with global regulatory requirements.

KYC/AML in Web3:

Web3 is the next-generation internet that uses blockchain technology to build decentralized applications (dApps) and smart contracts. KYC/AML requirements in web3 are similar to traditional financial institutions, but the decentralized nature of web3 makes it challenging to apply these regulations.

Web3 projects can implement KYC/AML by using identity verification protocols such as decentralized identifiers (DIDs), verifiable credentials, and zero-knowledge proofs (ZKPs). DIDs are unique identifiers that allow users to control their identities and personal data. Verifiable credentials are digitally signed documents that verify personal information, such as identity, address, and date of birth. ZKPs are cryptographic techniques that allow users to prove their identity without revealing their personal information.

For example, the Sovryn platform, which is a decentralized finance (DeFi) platform built on the Bitcoin blockchain, requires users to complete a KYC/AML process to access its services. The KYC/AML process is done through a third-party service provider that verifies users' identities and collects necessary information. The information collected is encrypted and stored on the user's device using a DID. The Sovryn platform uses the DID to verify the user's identity without collecting or storing any personal information.

KYC/AML in Blockchain:

Blockchain technology provides a transparent and immutable ledger that can be used to track financial transactions. However, it also poses a risk of anonymity and lack of transparency, making it an attractive option for money laundering and other financial crimes. To prevent this, KYC/AML regulations can be applied to blockchain technology to ensure compliance with global regulatory requirements.

Blockchain-based KYC/AML solutions can use the same identity verification protocols as web3, such as DIDs, verifiable credentials, and ZKPs. Blockchain technology can also be used to store KYC/AML information on a transparent and immutable ledger, making it easy to track and audit.

For example, the Swiss blockchain company, SEBA, provides a blockchain-based KYC/AML solution that allows financial institutions to onboard customers securely and efficiently. SEBA uses a distributed ledger to store customer data and performs identity verification using biometric data and other techniques. The distributed ledger allows financial institutions to share customer data securely and efficiently while maintaining compliance with KYC/AML regulations.

In conclusion, KYC/AML regulations are critical for preventing financial crimes such as money laundering and terrorism financing. Web3 and blockchain technology can provide secure and efficient solutions for complying with KYC/AML regulations while maintaining user privacy and transparency. By using identity verification protocols and distributed ledgers, web3 and blockchain-based KYC/AML solutions can ensure compliance with global regulatory requirements while providing secure and efficient service.