Composite Cryptographic Transactions with Prevalidated KYC Data
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Solution Overview
Problem
Managing cryptographic keys and transacting with different cryptographic assets is challenging, especially in open markets lacking client identifiers, leading to cumbersome and computationally intensive know-your-client/anti-money laundering processes, and scalability issues with regulatory requirements.
Innovation Solution
A composite cryptographic data structure is instantiated on a distributed ledger, using whitelist or blacklist data structures for identity validation, allowing on-chain transactions and reducing computational overhead through a reference mechanism that caches pre-calculation values, enabling efficient management and transfer of cryptographic tokens.
Engineering Contradictions & Design Principles
Engineering Contradiction Analysis
1Reliability
If identity validation is performed for each transaction in an open market, then regulatory compliance is improved, but transaction complexity and computational cost increase significantly
Solution Approach 1:
The patent performs identity validation and KYC/AML checks in advance before tokens are transferred to the distributed ledger. Client identifiers and validation results are stored with token metadata, so that subsequent transactions can reference pre-validated information without repeating the full validation process, thereby reducing transaction complexity while maintaining compliance
Solution Approach 2:
The patent introduces an intermediary validation layer that bridges regulated entities and the open distributed ledger market. This intermediary maintains client identifier records and validation status, acting as a mediator that enables regulatory compliance without requiring every market participant to perform full validation checks on each transaction
2Reliability
If computational checks are performed for every transaction to ensure regulatory compliance, then auditability is improved, but processing speed decreases
Solution Approach 1:
The patent creates simplified copies or references of validation data that can be quickly verified on the distributed ledger. Instead of storing and re-verifying complete KYC/AML documentation for each transaction, the system stores cryptographic references or hashed representations that enable fast validation while maintaining the ability to audit original records when needed
3Reliability
If client identifiers are required for all transactions, then regulatory compliance is improved, but ease of operation in open markets deteriorates
Solution Approach 1:
The patent segments the market into regulated entities (that must maintain client identifiers) and open market participants (who can transact with validated tokens). By separating the identification requirement from the transaction mechanism, the system enables convenient open market trading while still ensuring regulatory compliance for the entities that issue and manage the validated tokens
Data Source
AI summary
A composite cryptographic data structure is described, and corresponding methods, systems, and computer readable media. The composite cryptographic data structure is instantiated based on an underlying set of cryptographic tokens (e.g., blockchain/distributed ledger tokens) that, in some embodiments, are transferrable through on-chain transactions established on one or more distributed ledger networks. Identity validation, in some embodiments, may occur at one of composite cryptographic data structure instantiation or composite cryptographic data structure redemption, or both, through the use of a whitelist or a blacklist data structure.