Not enforcing KYC at the chain level is one of the biggest reasons behind the abuse of public blockchains by money launderers and terror financiers. India-based Newrl blockchain recently launched a solution for this problem. Newrl has introduced first of its kind KYC integration solution for public blockchains, which will enable compliance for businesses and regulators by removing the anonymity on blockchains. It may also open the doors for typical businesses to start embracing blockchain technology to improve their processes and expand their markets. In an email interaction with financialexpress.com, Newrl founder Swapnil Pawar shared more details about the new KYC solution, security issues and why on-chain KYC is important for public blockchains. Edited Excerpts:
What is the new KYC solution being offered by Newrl? How does it work?
Newrl’s KYC solution will enable compliance for businesses and regulators by removing the anonymity on a blockchain. This opens the doors for typical businesses to start embracing blockchain to improve their processes and expand their markets. Newrl achieves this by incorporating digital fingerprints of KYC documents (called “hashes”) for each wallet on it, along with information about the jurisdiction of the owner.
The wallet owner is required to either use a centralised authentication service or use a non-custodial wallet application to ensure the authenticity of the KYC documents. Actual documents, and information like name and tax-id, however, are not public. In this way, Newrl manages to maintain privacy while still ensuring adherence to KYC/AML norms.
How will this KYC solution help companies and increase on-chain compliance?
The solution is built in a manner where businesses don’t have to necessarily integrate the KYC solution within their own application which relieves them from any security concerns. The information is readily available for existing and new businesses, by requesting users to provide a temporary “view-only” access. Since the businesses would not be the “custodian” (handler of these documents), their regulatory concerns are lowered vastly. No other blockchain at present enforces KYC norms at the chain level.
Owing to their libertarian foundation starting with Bitcoin, most public blockchains are built on the premise of anonymity. While this avoids the censorship, it also opens these chains to abuse by money launderers and terrorist financiers. Newrl aims to target this issue with its KYC solution. This enables the users to be compliant in all cases on the chain while remaining on the white side of the regulatory laws as well.
How and where can businesses use this KYC solution?
Businesses don’t have to necessarily integrate the KYC solution within their own application which relieves them from any security concerns. This would be the most important selling point for KYC solutions for businesses.
The wallet owner is required to either use a centralised authentication service or use a non-custodial wallet application to ensure the authenticity of the KYC documents (the entire that will manage and control the users’ KYC details). Actual documents, and information like name and tax-id, however, are not public.
Are all blockchains inherently secure? What are the threats blockchains face?
Blockchains are definitely vulnerable to a multitude of tech issues similar to any other technological product. Some of the major ones of these are- 51% attack (gaining control of the chain through pooling – arms race of blockchain era), Phishing attacks – On non-suspecting naive users (who do not have much knowledge about the technical aspects), Sybil attacks (another form of 51% attack using fake nodes), and various other traditional technological loopholes can also be used to overwhelm a weaker network.
Newrl is protected against all of these types of attacks though. We are also actively working towards addressing newer technological malpractices that may arise in the future as well with our dedicated security team to always maintain a safe and secure network for our users.
Why do you think on-chain KYC solution is necessary for public blockchains?
In recent years, several important milestones have been achieved in the fight against black money – through the efforts of institutions like the Financial Action Task Force (FATF). It is important to not lose ground to the money laundering ecosystems through purely anonymous transactions on the blockchain. The identity at the chain layer brought in by Newrl is aimed at ensuring that mainstream use of blockchain is compliant with KYC/AML norms.”
Using our solution, we aim to break a completely new path for blockchain innovation while being conformant to the government’s highest standards as well. This solution would finally allow blockchain to be implemented in real-world use cases as well, away from the core web3 enthusiast innovations it was restricted to.
What is Newrl?
Newrl is currently based out of Mumbai and Bangalore. (places where we have a physical presence as in offices). Newrl is a ‘Trust Network’ blockchain built for decentralized social finance founded by Swapnil Pawar. The company enables individuals and small businesses to access capital from their communities using their credibility and tokenized assets as collateral.
Newrl simplifies legally robust tokenization of assets like stocks, properties, and startup equity. It also enables individuals and small businesses to tokenize new forms of assets like personal creditworthiness, social media revenue inflows, patents, invoices, brands, warehouse receipts, etc.
For illiquid assets, Newrl supports a mutualization mechanism to facilitate liquidity, also helping their use as collateral in a loan. Newrl focuses more upon real-world assets, with backing from physical assets which reduces the scope of many types of fraud (eg. double lien frauds, etc.), furthering the belief in the ‘trust network’.