Ripple is preparing to launch a new feature on the XRP Ledger, which promises to streamline identity verification and KYC/AML compliance while protecting user privacy and fostering trust in decentralized finance.
The upcoming XRP Ledger (XRPL) update seeks to revolutionize the way identity and compliance are managed within its ecosystem.
According to documents published by Ripple, the introduction of the “Credentials” feature will mark a milestone in the evolution of blockchain, allowing institutions to comply with Know Your Customer (KYC) and Anti-Money Laundering (AML) regulations without sacrificing the privacy and decentralization that are pillars of blockchain technology.
Credentials represents a breakthrough that will facilitate the adoption of XRPL by traditional financial institutions, and open new avenues for innovation in the field of decentralized finance (DeFi).
What is XRLP Credentials?
As Ripple explained, the Credentials feature introduces an innovative element to the XRP Ledger. This new component stores the fundamental information of a transaction, including who is sending and who is receiving, the type of verification performed, such as KYC approval, and, if applicable, the expiration date. Additionally, the system incorporates an indicator that shows whether the user has accepted the credential, which will be valid only if the user has accepted it and if it has not expired. Once the user receives the credential, the responsibility for its management and custody passes from the issuer to the user.
Certificate
Elementary Finance Course in 7 Steps
Basic levelIn this Elementary Finance course in 7 Steps you will learn to manage your finances, knowing the key concepts that will help you better understand and manage your money.
The feature is currently being reviewed by XRP Ledger validators, and will be activated if it meets the required voting threshold of 80% support over a two-week period.
This decentralized voting process ensures that updates to the XRP Ledger network reflect the consensus of participants, preserving the decentralized nature of the platform.
How does Credentials work?
The core of the new feature Ripple’s unique ability to issue, store, and verify signed statements directly on the XRP Ledger. These statements, known as “credentials,” attest to a user’s identity, legal status, or other attribute.
Unlike traditional systems that require the disclosure of sensitive personal information, “credentials” allow users to demonstrate their compliance with certain requirements without exposing sensitive data. The design of the XRPL credential standard It is based on the W3C Verifiable Credentials standard.
To better understand how this new feature works in XRPL, Ripple illustrated a practical example:
If a regulated company, “Verity,” only wants to interact with accounts that have passed KYC checks, it configures its account to accept credentials issued by a trusted issuer, “Isabel.” Alice, a user, provides the necessary documents to Isabel off-chain. If Isabel verifies Alice’s identity, she issues a credential that is attached to Alice’s XRP Ledger account. Alice can now interact with Verity without needing to reveal her personal data directly to Verity.
Key objectives behind the development of the new feature
The Credentials feature addresses a critical need in the decentralized finance space: balancing regulatory compliance with privacy protection. By enabling secure credential management and verification directly on the XRP Ledger, KYC and AML compliance procedures are streamlined while protecting user confidentiality.
Mayukha Vadari, Senior Software Developer at RippleX, highlighted that this feature will improve user onboarding processes, allowing for automatic approval for deposit authorization without manual processes. Additionally, the integration with Decentralized Identifiers (DID) gives users greater control over their data, acting as a decentralized “fingerprint.”
Combined with Credentials, DIDs allow users to authorize off-ledger transactions, improving the security and flexibility of the XRP Ledger. As a whole, this system facilitates interactions with tokenized real-world assets (RWA), promoting blockchain adoption in regulated industries.
“The goal of this feature is to streamline the process of compliance checks, such as KYC, and enable more trust-based applications within the XRP Ledger ecosystem.”, assured Ripple.
The potential impact on DeFi
The introduction of Credentials has the potential to transform the decentralized finance landscape, allowing institutions to operate within the regulatory framework without sacrificing the privacy and decentralization inherent to blockchain. By offering a Practical and secure solution for identity management and complianceXRP Ledger is establishing itself as a leading platform in the blockchain ecosystem. In addition, the new feature could prevent multimillion-dollar losses due to hacks and scams by verifying identities and protecting against fraudulent activities.
The ability to comply with KYC/AML regulations without compromising privacy could drive mass adoption of XRPL by banks and financial institutions, and pave the way for the creation of innovative financial products and services that require a high degree of trust and compliance.
PREPARE YOUR WALLETWith Credentials, XRP Ledger will offer a convenient and secure way to manage identity and compliance, further solidifying its role as a leading platform in the blockchain ecosystem.
The upcoming release of this feature represents a bold step towards a future where decentralized finance and regulatory compliance can coexist harmoniously.
