Blockchain Will Help Us Prove Our Identities in a Digital World

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“Who are you?” may well be the world’s most frequently asked question. On a website, in a nightclub, at an airport, or in front of a bank counter, everyone wants us to prove that we are who we say we are.

But 2.4 billion poor people worldwide, about 1.5 billion of whom are over the age of 14, can’t answer that question to the satisfaction of authorities. While they certainly know who they are, they are often excluded from property ownership, free movement, and social protection simply because they can’t prove their identity. They are more exposed to corruption and crime, including people trafficking and slavery. (Insightfully, the United Nations is aiming to change this, with UN Sustainable Development Goal #16, Peace, Justice, and Strong Institutions, aiming to “provide legal identity to all, including birth registration, by 2030.”)

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Based on the research of the Fletcher School at Tufts University’s Institute for Business in the Global Context and Planet eBiz.

Globalization and population growth increase the pressure to find cost-effective solutions to prove identity. Recent advances in biometrics, from iris scanning to DNA analysis and voice pattern recognition, are likely to play an important technical role in “fixing” this, yet identity is not necessarily something that is fixed. Our identities are records of our past behavior, and they change over time. Our identities can also vary depending on who is doing the identifying. For example, the tax office probably has little interest in your school report cards, but may care enormously about the days you spent out of the country as an adult.

Proof of identity can be a problem for rich and poor alike. For the rich, regulations around anti-money laundering, know-your-customer, and ultimate beneficial ownership increase legal and regulatory costs and hassles. Ninety percent of businesses responding to the International Chamber of Commerce’s 2016 Global Survey on Trade Finance pointed to anti-money laundering as the most significant impediment to trade.

For the poor, Hernando de Soto, the Peruvian economist famous for his work on the informal economy, observes: “Without an integrated formal property system, a modern market economy is inconceivable.” Thus a modern market economy is inconceivable without proper identification, because there are no proven holders of property rights.

While hassles for the wealthy are a world away from the daily toils of the “great undocumented,” the solution to their problems may be the same: mutual distributed ledgers (MDLs), or blockchain technology. MDLs are unalterable registers that allow groups of people to validate, record, and track transactions across a network of decentralized computer systems. The computers follow a common protocol that allows individuals to add new transactions and distribute them using peer-to-peer architecture. MDLs are multiorganizational databases with a super audit trail. Whereas a central database can lead to a natural monopoly that everyone has to use, the fact that MDLs are mutual — i.e., held in common — means they are hard to exploit as natural monopolies. You can’t charge me for my copy of the ledger, because you don’t own it. No one does.

A common question after two decades of MDLs is “What is the killer app?” Since the 2009 launch of bitcoin, the short and somewhat shaky answer has been cryptocurrencies. Bitcoin has had its ups and downs. It stirs up economic controversy with its community’s libertarian “new currency” agenda and high price volatility. Bitcoin also stirs up social controversy as rumors of heavy criminal trading of drugs and guns rightly attracts the attention of law enforcement agencies. Yet this decentralized cryptocurrency and its underlying MDL technology works, and some regulators grudgingly allow financial firms to use it.

Now a more fundamental killer app for MDLs is emerging: the secure storage and transmission of digitally signed documents with a super audit trail. These immutable document exchange networks are emerging in trade finance, shipping, and insurance, where everyone has a big problem validating the identity of people and assets. An identity document exchange typically has three parties: (1) the subject, which is an individual or an asset, (2) the certifier, which is usually an organization that notarizes documents, like a government agency, an accounting firm, or a credit referencing agency, and (3) the inquisitor, which is an organization conducting know-your-customer/anti-money laundering (KYC/AML) checks on the subject.

Typically, there are two distinct MDLs: a content ledger holding the individually encrypted documents, and a transaction ledger holding encryption key access on a series of “key rings,” which are folders for documents such as identity, health, or academic qualifications. The subject can give the identity certifier permission to put digitally certified documents on the subject’s key rings. For example, a law firm might provide digitally signed copies of documents it has notarized to the subject for them to keep and use. A government might provide each of us with a digitally signed copy of our driving license for us to control. Certifiers have no further access to the data, but inquisitors rely on the data being stamped by a trusted third party, much as a notary public notarizes a physical document.

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The subject gives controlled key usage to inquisitors to inspect the documents with smart contracts, pieces of code recorded on the MDL. The network can restrict the number or timing of inquisitions and record them all for the subject. Third parties such as banks, insurers, or governments can get permission to access documents based on the permissions framework coded into the MDL. Commercial certifiers, such as accountants, lawyers, or notaries, may provide indemnities, such as insurance of validity, to inquisitors for a fee.

Tellingly, since 2007 Estonia has been operating a universal national digital identity scheme using blockchain. All government data about individuals is stored on a distributed ledger that individuals control and can pass to others. This digital identity system powers a low-paperwork society using digital signatures. The scheme is so useful that nonnationals use it for their personal digital signatures elsewhere in Europe.

Both high-net-worth and low-net-worth customers expect to have a sensible, inexpensive, global way to prove their identity, whether it is for payments, credit, government records, health records, or academic qualifications. MDL technology is ideally suited for immutable identity document exchange networks, and there are many initiatives under way to realize their potential. Empowering individuals to store, update, and manage access to their data seems rather obvious, including exercising their “right to be forgotten” by canceling their keys.

Proving your identity today is an expensive process. Each identity document validation takes a lot of time and uses low-tech paperwork. People would like to get more use from expensively validated identity documents. One way is to increase the number of uses. For example, in Estonia, banks realized that account access could be given on the national ID as well as a bank card. The rise of many-use IDs could in turn drive consolidation toward a few competitive global systems.

But this is no panacea. The ultimate question surrounding an immutable identity ledger is this: Will it become a lifeline for people, or a burden? Using ledgers that never lose data could materially alter the way society views identity, privacy, and security. Bureaucratic slips such as a mistyped name can be corrected, but the slip can never be forgotten. Behaviors will change, and societal conventions will alter as a result. For example, we may be more tolerant of other people’s histories when they can see our own unpaid fines or misdemeanors. Perhaps we will be more intrusive with important issues such as lying about academic qualifications, and more forgiving with lighter matters such as a few mediocre grades.

And think of our permanent legacies. Perhaps we will act more responsibly if our legacy is indelible. For example, we might choose to donate our health data to research through smart contracts triggered by our death certificates. When our identities are forever etched in immutable stone, “Don’t you forget about me” may prove to be a more enduring tune than we ever could have imagined.


Source: HBR