On-chain identity management
As mentioned before, by essence, a security token being subject to a stringent governance, its distribution has to follow all the applicable regulations and, in particular, those aspects related to KYC rules. In that respect, we believe that identity management is key to implement such compliance on the blockchain.
As the ownership of a security token is registered on the blockchain, it is necessary to have a way to track the token ownership and to prohibit illicit transactions directly on the blockchain. This is why there is a need need to make a link between wallet addresses and identities and to manage rights through an identity contract directly on the blockchain. In addition, it is also needed to ensure privacy of those identities in order to comply with personal data related regulation. For this reason, personal data should not be stored directly on the blockchain but only the validation certificates (claims) issued by trusted third parties (KYC provider, government, lawyer,…) having checked these data. Those certificates (claims), stored in the identities of parties to a transaction will be used by the transfer manager to validate whether those parties are hold and transact a specific security token, or not.
Linking an investor’s wallet and to his identity can bring significant added value to stakeholders in the nascent security tokens market. For example, it will allow a token issuer to replace the tokens of an investor if the investor loses access to his wallet (which happens pretty often and generally results in the loss of the owner’s assets ), by verifying that his on-chain identity fits with off-chain data linked to the identity contract corresponding to the lost wallet. After the identity of the investor is confirmed, the issuer can burn the lost tokens and mint new tokens on the new wallet of the investor.
Also, on-chain identities and the certificates (claims) they store can potentially be re-used for passing KYC’s for other security tokens than the one for which those claims were originally provided or even for other purposes than investments (e.g. account opening at an exchange, identification with compatible web services, …). If Google and Facebook accounts are the identities of most people on the internet of information, OnchainID's on-chain identities can be the ones of the internet of value. They are really owned and controlled by their owner.