Although some people in life do an extremely convincing job of indicating otherwise, all humans have an identity. This identity comes in many forms, and as modern life has progressed, the ways in which people can identify have multiplied. Technology has now made it easier for people to explore and share their identities.
But, at some point in the not-so-distant past, the internet overtook people’s ability to manage their identities online. Companies, notably the big data giants, have become the new gatekeepers. As the world enters a more data-conscious era, innovators in the tech industry believe that blockchain technology could be the solution.
One of the most common goals across all blockchain-based identity projects is to put data back into the hands of those who created it. However, a decentralized identity network would look very different from the way data is gleaned now.
Decentralization and encryption are key to securing personal data on blockchains. Instead of anonymous companies scooping up data once it is created, blockchain identity systems would store data on encrypted and decentralized networks. From there, users could grant limited access to third parties using keys.
But, as anyone with a casual interest in tech will know, blockchain technology is cited as the miracle cure to most of society’s technological woes. It is expensive, difficult to explain to a regular person and, crucially, hard for companies to determine how to make it profitable. But that hasn’t stopped a significant number of use cases being developed and rolled out worldwide.
Payment and identity are closely linked. For hackers, compromising someone’s online identity, whether through password cracking or unlocking a large centralized database of personal details, is the digital equivalent of a gold mine. People’s online identities are also often attached to their financial details.
Unfortunately for those whose details are leaked or hacked, online identity theft doesn’t require dodgy prosthetics or a wig. Hackers are constantly scouring the online realm for weaknesses, and stolen details are now one of the most commonly sold products on dark web marketplaces.
This is where blockchain comes in. For Al Johnson, the CEO and founder of the Nuggets blockchain identity and payments company, blockchain ID systems give people the power to control their own identities:
“A blockchain ID system adopts a user-centric approach, eliminating central points of failure by empowering individuals with self-sovereign possession over their own data.”
For Johnson, payment and identity go hand in hand. When starting out in blockchain identity, Nuggets targeted identity and e-commerce. But Johnson soon realized that, as the ways in which people can pay online grow, so does the scope for identity solutions that can be solved.
Johnson explained that as the company increasingly dealt with payments solutions and navigated the burgeoning regulatory structure surrounding identity online, he began to see the importance of blockchain and payments in creating strong digital identity:
“To get the highest level of digital identity, you need to have transactions. You verify, you do biometrics, but the best thing you can get is to have the transaction proofs afterward. Now, when you put payment and identity together, you'll get a transaction proof probably three or four times a day.”
Johnson explained to Cointelegraph that blockchain identity and payments create a strong digital identity through the number of verifications that are required in transactions from all parties involved:
“When you make a payment, it’s checked with the merchant. It's being checked with payment and the gateway is being checked with the banks and the many other services you interact with. So, that trend is not only a transaction, it's a quadruple verification on each point.”
EU is home to blockchain ID innovation
Europe is fast becoming a fertile territory for blockchain ID projects. Although the EU has a number of initiatives to push forward blockchain innovation across its borders, Estonia and Catalonia are pioneering digital identity.
Related: Interview With Daniel Marco on the State of Blockchain in Catalonia
Estonia is perhaps the world’s leading country when it comes to blockchain technology. The country’s advanced digital ID system doesn’t stop at simply identifying Estonian citizens. The country’s e-services are now all available online, allowing for legal travel among EU states, national health insurance, proof of ID when logging in to banks, digital signatures, voting, medical records and more. Abbas Ali, global head of digital identity at R3, outlined his view to Cointelegraph that Estonia is leading the way in the blockchain ID sector:
“In Estonia today, every citizen has access to a state-issued digital identity which can be used to provide digital signatures. Hence, it makes sense that Estonia would look to using blockchain technology to add a layer of security, trust and data integrity to for all the data it holds on its citizens. However, few details are available on the actual implementation, and it remains unclear how they’re actually using blockchain today.”
Despite the political uncertainty that has surrounded Catalonia in recent years, its government has been at the forefront of blockchain ID research, most notably with the launch of IdentiCAT. IdentiCAT is a project that seeks to make citizens “exclusive owners” of their digital identity. At the time of the launch on Sept. 9, 2019, the Department for Digital Policies and Administration described the project:
“IdentiCAT intends to be the first digital identity in Europe, which will be driven by the public sphere and self-managed by citizens themselves with full legal guarantee and effectiveness to operate not only with public authorities but also with private entities, thus fully ensuring compliance with personal data protection regulations.”
Although Catalonia’s IdentiCAT project is ambitious, Ali believes that: “While it is definitely a positive step for the people of Catalonia, it is still too early to comment. Additionally, for digital identity to be truly meaningful, it would need support from the government on a national level.”
Does blockchain ID need government support?
Both blockchain and cryptocurrency are technologies that go hand in hand with libertarian ideas. For many people interested in decentralization, both for technology and finance, an important goal is to minimize the capabilities of the state to infringe on individual liberty.
Johnson believes state involvement in blockchain ID projects is not necessarily to be avoided. He explained to Cointelegraph that it depends on the type of government involved and what the end goals of the project are, clarifying:
“The U.K. has been particularly good looking at the overview [private blockchain ID projects] and then working forward. But, on the other hand, there’s China, which very much has state control. It’s possible to say, well, at least they get things done and they've moved toward their own cryptocurrency. It’s easy to see how that could be associated with identity and the debate as to whether state involvement could be good or bad. But then you have the opposite situation in America where there are regulators fighting against any change in terms of coming forward.”
Ali was somewhat non-committal, explaining that there is no clear-cut example to demonstrate whether government involvement in blockchain ID would be necessary or not:
“Identity is contextual, meaning the type of verification and data required to identify a legal person, natural person or thing varies based on the nature and context of the transaction. Some use-cases may require verification from governing bodies, yet others may not. The acceptance criteria for digital identity ultimately rests on the relying parties to define.”
One of cryptocurrency’s most ambitious goals, especially given the current state of the markets, is to replace mainstream finance. For Ali, this is where blockchain ID projects and crypto differ greatly: “Blockchain-based digital identity is not meant to replace the role of governments in issuing citizens national identities.” Unlike central bank digital currencies, which many governmental and regulatory actors believe pose a direct threat to sovereign financial security, blockchain ID is not a decentralized approach to overcome the national identity of states, as Ali believes:
“Blockchain simply provides a secure, privacy-preserving and scalable way of exchanging verified digital credentials between parties. In other words, blockchain-based identity systems are simply providing a platform to issue, exchange and verify digital identities. There is still a role for governments of sovereign state and other private organizations that issue verified identities today to issue those credentials in the digital world.”
Despite saying that the suitability for governmental involvement depends on the use case and that there is no threat to state identity, Ali told Cointelegraph that: “Identity is a basic right for all and is needed today for accessing just about any type of public or private service.” He added that blockchain IDs will serve an important role in providing individuals with non-party political forms of identification:
“As we move toward an increasingly digital world where basic services are moving online and people are interacting through new, purely digital channels, having a digital identity outside the control of any other parties is a fundamental right of all people and will have profound implications on individual liberty in the future.”
How will blockchain ID develop?
The growth of companies such as Nuggets, along with the examples of the governments of Catalonia and Estonia at a national level, has shown that there are ample use cases for blockchain ID. Ali explained to Cointelegraph that he expects significant growth in both the public and private sectors:
“In the short run, we expect many more organizations to start investigating and deploying decentralized identity systems for their own internal use-cases. In the long run, we are seeing a lot of interest from the public sector in developing national digital identity infrastructure and potentially deploying it on a blockchain network.”