How blockchain can make digital ID more secure

Perhaps the most valuable asset we have online is our identity. It allows us to buy and sell goods, even open a bank account.

It’s understandable then that users might have concerns about trusting their identifying personal data to blockchain (the technology behind crypto), which has seen more than $1bn (£0.87bn) in fraud since the start of 2021.

However, trust – along with greater security – is the object of the exercise. Blockchain-based digital ID is based on the principle of self-sovereign identity (SSI), where users can share selected information with vendors or service providers instead of their entire identity. The analogy is of a person walking into a bar and presenting a reliable ID that only showed they were of legal age to buy an alcoholic drink – rather than presenting an ID card that could also reveal their name and address details.

SSI means that the interacting parties know that they can trust each other because they can see the relevant key information. And blockchain-based digital ID can make this a reality.

“This is important because there is currently no way for businesses online to interact with contractual trust in a peer-to-peer manner that is not mediated by a third-party login service,” said John Jordan, CEO of the Government of British Columbia’s Digital Trust Service, which is beginning to implement blockchain-based ID systems for citizens and local businesses. “Blockchain provides the ability to have confidential friendships and business partners on a foundation of trust.”

Seamless authentication

In addition to trust, one of the biggest benefits of a decentralized blockchain ID will be interoperability. Today’s digital identity experience is fragmented; there are multiple platforms and logins globally. Verifying credentials across these platforms is costly and time-consuming. “Cross-chain interoperability can result in a larger ecosystem, allowing businesses to reach a wider audience,” says David Palmer, blockchain lead at Vodafone Business. “Blockchain can act as a ‘network of networks’ to achieve this.”

In addition, automation comes with interoperability, so companies can verify user data across industries without having to contact different sources or report to multiple regulatory bodies. For example, the government of British Columbia has implemented an automated system for business license entitlements via a verified credential. As Nathaniel Amann-Blake, Assistant Deputy Minister of the British Columbia Ministry of Energy, Mines and Low Carbon Innovation, explains: “Blockchain has been critical to improving efficiency, automation and trust in this sector, where it has always been a large and changing sector . regulatory landscape.”

Automation will also become increasingly valuable if digital spaces such as the metaverse catch on. “If in the future we want digital personas that cross into different digital platforms, there needs to be full automation of ID verification, as there won’t be people around to verify things at every digital border,” says Palmer.

There is also a case to be made for blockchain-based ID to reduce fraud. Most digital IDs are currently stored in centralized databases, making them a honeypot of information vulnerable to accidental exposure or deliberate theft. “Because blockchain IDs allow companies to only hold specific data, it’s almost impossible to be hacked,” said Daniela Barbosa, CEO of the Hyperledger Foundation, an open-source creator of distributed ledgers. “It’s also more efficient and cost-effective as you process and store less data,” she adds.

Rethinking customer data

Not surprisingly, there are also implications for how companies can look to monetize customer data. “Decentralized SSI gives customers the ability to opt out of certain types of data being shared with a company, for example when they make a purchase. Customers can now look for some sort of reward for sharing their data. There is a real opportunity here for companies to reshape their business models to see how they can add value from this, says Palmer.

It will all come down to business leaders thinking carefully about the data being collected and its implications for the entire business. For Taylor Monahan, global product manager at crypto wallet provider MetaMask, “The key is not to default to accepted norms such as offering login with a single button, but to think about the relationship with customers, to use this new technology to unlock new features for users and to strengthen them.”

That means now is the time for business leaders to start investigating real-world use cases for blockchain-based ID. Many of the current examples of implementation are no longer pilots but true replicable models. “What we need to do now is understand the value of these new business models,” says Heather Dahl, CEO of Indicio, which has partnered with Google to provide a trusted digital ID ecosystem for companies via the Google Cloud marketplace. “This can even be within a business to overcome departmental silos,” she adds.

Of course, implementing a blockchain ID system will also require significant employee engagement across departments, from legal to marketing to HR, to meet the necessary Know Your Customer rules, privacy regulations or Web 3.0 standards.

“We need to start building and testing these systems to ensure the right level of privacy, transparency and security,” said Andrew Thomson, a senior analyst specializing in blockchain technologies at Johnson & Johnson. “While blockchain may not be broken technologically, without proper governance and change management in place, other areas may fall short.”

By 2030, ID2020, a UN alliance of industry, government and academia, aims to achieve universal digital ID using blockchain, and so far the role of government has been key. The development of the existing use cases has largely been the result of collaboration between open source communities such as the Hyperledger Foundation and authorities worldwide.

Thomson believes that there is a real possibility that blockchain ID can be implemented in a way that benefits people – for example in voting or social security. “Ultimately, the government needs to be very supportive of whatever solution is finalized so that it gets the level of adoption and trust that the industry needs,” he says. “Once we start demonstrating use cases that make a difference, that will drive adoption.”

Monahan is also an optimist. “It is important to think openly about the potential of blockchain technology and ID today. There is incredible value when people are empowered and have the confidence and space to innovate.”