Using Blockchain for Digital Identity & Crypto Assets

How Blockchain and Distributed Ledger Technology can help companies avoid looming data ownership burdens and spur economic growth

This post takes a look at using blockchain for digital identity & crypto assets – an important topic that has widespread implications. Any feedback is most welcome – [email protected]

Since the advent of the Internet, private companies have collected, managed and claimed ownership of their customer’s digital identities and personal data.

But as the world digitizes at a rapid pace, this corporate online model of data ownership and management, long considered a strategic asset, is quickly becoming a significant liability.

It’s time to replace ad-hoc and fragmented identity systems built by companies and public institutions with a new decentralized identity infrastructure. A blockchain for digital identity which enables a self-sovereign identity layer that gives individuals ownership over their data and control over how and where that data is revealed.

There are several reasons for this.

In a nutshell. The identity verification, access management and storage systems currently used by corporations are outdated, fragmented, insecure and ill-equipped to deal with the speed and complexities of the digital world.

They are draining company resources, impeding the provision of online services and causing poor user experiences.

Centralized corporate servers used to store sensitive customer data have also become a major security concern.

Insecure servers are unable to protect against sophisticated hackers and have given rise to epidemic levels of identity theft and fraud. This has exposed companies to massive financial penalties and reputational damage.

But that’s not all.

Rising levels of cyber-crime and the misuse of personal data have caused an erosion of consumer trust. With public concerns over privacy and security increasing and calls for greater data sovereignty gaining steam, governments have responded by introducing restrictive new data protection laws.

The EU General Data Protection Regulation (GDPR), for example, set for implementation in 2018, will place corporations under unprecedented pressure and even threaten the ability of some companies to operate.

Beyond looming data ownership challenges, companies must also begin to deal with an increasingly problematic reliance on intermediaries in the digital realm.

In a world where commerce is conducted at lightning pace, and increasingly online, the reliance on centralized middlemen like banks and governments to transfer real-world assets is impeding the flow of business and slowing growth in the global economy.

Making things even worse, these intermediaries are proving vulnerable to failure and hacking attacks at an increasingly alarming rate.

In developing nations, the impact of the reliance on intermediaries is far more severe. Corrupt and mismanaged intermediaries have spurred insecurity, prevented the creation of wealth, and discouraged companies from investing.

Overcoming the challenges that stem from the corporate-centered data ownership model and dependence on intermediaries is critical. But it will require companies to make big changes and utilize new technologies that are nothing short of transformative.

Using blockchain for digital identity can help facilitate this transformation by creating a new model of online data management that frees companies from the impending burdens of data ownership. In doing so, the technology can deliver the agility and robustness businesses require to succeed in the digital economy.

The technology can also increase efficiency, inclusiveness and spur global economic growth by enabling the digitization and peer to peer transfer of real-world assets and an incorruptible digital record of ownership.

Stop looking at data ownership through old paradigms

using blockchain for identity

Much of the corporate world continues to look at the ownership of customer data through a lens developed in the early days of the Internet. But it ain’t the 1990’s or early 2000’s anymore.

Things have changed.

The current model of digital identity management, whereby corporations control, manage and take ownership of their customer’s identities in siloed, centralized databases is ill-suited to the demands of today’s digital world.

“The Internet was built without a standard, explicit way of identifying people or organisations. So websites simply began offering their own local accounts with usernames and passwords, and this has been the predominant solution ever since.”[1]

The enablement of self-sovereign identity data is now a necessity for survival and success, not something to fear and obstruct.

Here’s why –

As consumers have shifted their lives from the physical to the digital world, the amount of data owned and controlled by corporations has increased dramatically. In fact, the sheer volume of data collected by companies today is staggering.

Facebook alone has accumulated over 300 petabytes of personal data since it began operations in 2004.[2]That’s over one hundred times the amount the Library of Congress has collected in over 200 years.[3] [4]

“Identity in the digital world is even trickier. It suffers from the same problem of centralized control, but it’s simultaneously very balkanized: identities are piecemeal, differing from one Internet domain to another.”- Christopher Allen

But as companies collect and store more sensitive information than ever before, customer data has become increasingly insecure.

From Yahoo and Sony to Target and Walmart, the scale and speed of data breaches, identity theft, and fraud are unprecedented. Equally as astounding are the financial penalties and reputational damage experienced by the companies affected.

The introduction of new data protection laws is adding substantial challenges to the operating environment as well.

The EU General Data Protection Regulation (GDPR), for example, promises to place more pressure on businesses to protect their customer’s information. It could even threaten the very ability of some companies to continue operating.

“The next evolution of the Internet will be the creation of a common identity layer that allows people, organisations and things to have their own self-sovereign identity—a digital identity they own and control, and which cannot be taken away from them. Self-sovereign identity is the natural evolution of an ecosystem which has moved faster than its supporting
capabilities.” – The Sovrin Foundation

Companies are also finding it much harder to establish and verify customer identities as the volume and complexity of digital transactions increase. [5]

Outdated access control and verification systems employed by corporations are becoming less effective.

Additionally, a growing list of usability issues stemming from data ownership and management can no longer get ignored. One such example – as individuals visit more websites and increase their online activities, they are being forced to remember and maintain their credentials for every site they interact.[6]

The need to keep and verify credentials for every site is not only frustrating users, it’s also exacerbating current security vulnerabilities as weak passwords get chosen, and the same password is often used for multiple websites.

Using blockchain for digital identity- A new model of data ownership built for the Internet economy

Self-sovereign identity can become a reality by shifting trust from corporations to an incorruptible distributed ledger.

A blockchain is a type of immutable and transparent distributed ledger based on a trustless consensus that has tremendous potential to store and share sensitive information.

The technology’s decentralized, open & cryptographic nature allow people and businesses to trust each other and transact peer to peer.

It can replace the centralized, corporate-controlled digital identity management infrastructure of today with a decentralized system that increases security and gives control, ownership, and responsibility for identity information to individuals.

By shifting trust from corporations to a network agreed, incorruptible distributed ledger, companies free themselves from having to issue, verify and store identity data. [7]

With data stored in a decentralized immutable ledger, under customer control, many of the security, privacy, usability and compliance risks that impact corporations are eliminated.

Unilateral attacks that impact centralized servers become impossible.

Companies also avoid the looming regulatory nightmare that will see substantial limits placed on the sharing of information and massive financial penalties dished out for the mismanagement of customer data.

There is a chance to deliver individuals greater control over what parts of their identities get released in return for access to services.

This is achieved because the technology enables a shift from a “gather as much data as possible” model to a “need to know” model. By enabling the “need to know” model, the technology has the potential to calm rising public concerns over privacy.[8]

“to complete a car rental request I should be able to prove “is able and allowed to drive a car” and “has paid the fee amount” and ideally I should be ready to go. Even insurance and liability is something that could be handled without providing the sensitive information in the first place. Think of putting my personal data in escrow with a third party that would only release it to the car rental in case something actually happens.”

[9]

Last, but certainly not least, because the data within a blockchain is immutable and unhackable, companies have no need to continue operating costly and inefficient in-house verification and access management systems.

They no longer need to maintain large and expensive compliance departments either.

All that is required to verify a customer’s identity is for companies to quickly check a decentralized, privacy-respecting, and secure online identity system.

Reducing the reliance on intermediaries

The global economy is entirely reliant on intermediaries to function.

The secure transfer of any real-world asset like real estate, oil or diamonds requires intermediaries to establish trust, verify the identities involved, facilitate clearing and settlement and keep official records.

In today’s fast-paced digital economy, however, dependence on intermediaries is becoming increasingly problematic.

Why?

The problem is that many of these assets are difficult to physically transfer or subdivide.[10] This means that the parties involved in a transaction must instead trade paper that represents some or all of the asset. This is a complicated process to track even with the help of intermediaries.

So, intermediaries try to facilitate this paper trading process but they cause a whole lot of problems. They store sensitive ownership and transaction records in insecure, opaque and centralized storage systems that are vulnerable to crashes and internal misuse. These systems are also failing to defend against hacking attacks at an alarming rate. [11]

Another major drawback is that trust generated by intermediaries for the parties involved in a transaction comes at a high price. Middlemen like banks charge hefty fees for their services. For companies that transact on a regular basis, fees can become a significant burden and even prevent some business models from being profitable.

Intermediaries slow things down as well. The time it takes to authenticate, clear and settle an asset transfer is impeding business operations.

Cost and time impediments are particularly evident in today’s increasingly complex global supply chains, where several intermediaries are often required to validate, record, clear and process the transfer of valuable goods. Intermediaries make supply chains inefficient and increase production costs. [12]

In the developing world, corrupt and mismanaged intermediaries, namely governments and banks, have prevented wealth creation and spurred insecurity. [13] With few trusted intermediaries to facilitate the transfer and reliably record ownership of real-world assets, billions of people in the world’s poorest nations remain excluded from participating in the formal global economy. [14]

For citizens in many developing countries, the failure of central governments to record and facilitate the transfer of property titles, for example, has caused a tragic and unjust economic plight. It has also meant that companies have avoided doing business in many developing nations as operating remains too risky.

Tokenization is putting real-world assets on blockchains

Imagine a world where companies and individuals can instantaneously move real-world assets (real estate, gold, oil etc.) peer to peer via an incorruptible digital ledger that records the transfer and can prove ownership beyond any doubt.

A new world of tokenization where real-world assets are secured by blockchain technology is fast becoming a reality.

Tokens are a digital representation of a real-world asset. Take gold-based tokens for example. The idea is best summed up by Jim Manning, a writer at Ethnews.

“The token and the particular amount of gold it represents are one and the same. So while it’s not entirely incorrect to think about the token as a unit of value that derives its worth from the price of gold, it’s even more specific, as the token represents a particular piece of gold you own. The token acts like your record of ownership of an asset, effectively becoming the digital shadow that a real piece of gold casts into the virtual world.”

[15]

Tokens on a blockchain can be easily transferred, tracked and managed. What’s more, the technologies permanent and incorruptible nature make it highly secure. Any attempt to tamper with any part of a blockchain is apparent immediately as cryptographic signatures generated from a hash of data will not match the older ones.

A blockchain’s decentralized and cryptographic nature allows people to trust each other and transact peer to peer, making the need for intermediaries obsolete. This also brings unprecedented security benefits.

A blockchain is also regularly updated so every ledger in the network is the same, giving each member the ability to prove who owns what at any given time.

From the Internet of information to the Internet of value

By enabling the digitization of real-world (and intangible) assets, blockchain technology is driving a fundamental shift from the Internet of information, where information can be viewed and exchanged, to the Internet of value, where real-world assets can be instantly exchanged. [16]

Blockchain and distributed ledger technologies enable the creation of a new global economy of immediate value transfer where trust is established through consensus and complex computer code, not by central intermediaries. [17]

“for the first time, a way for one Internet user to transfer a unique piece of digital property to another Internet user, such that the transfer is guaranteed to be safe and secure, everyone knows that the transfer has taken place, and nobody can challenge the legitimacy of the transfer. The consequences of this breakthrough are hard to overstate.”- Marc Andreessen

The ability to instantaneously transfer and record ownership of real-world assets without involving intermediaries has several benefits for companies and the wider economy.

Without intermediaries, the global economy will become more efficient, secure and inclusive. Supply chains, the engines of the global economy, have the potential to be completely transformed. With blockchain and distributed ledger technologies companies and regulators can experience system-wide transparency and enhanced tracking and auditing abilities.

Perhaps most profoundly, blockchain has the power to help people in the world’s poorest nations join the global economy. With an ability to immutably record property ownership and transfer assets peer to peer, citizens can begin their journey to wealth creation, and companies can start to operate more confidently in developing markets. [18]

The high-speed digital economy necessitates new ways of doing business

Laying the foundation for success in the digital economy will require companies to move away from a dependence on intermediaries and the impending burdens of data ownership.
Industrial era operating models and old world information technology systems that helped companies rise to prominence in the past now pose an existential threat to future survival.

“In today’s era of volatility, there is no other way but to re-invent. The only sustainable advantage you can have over others is agility, that’s it. Because nothing else is sustainable, everything else you create, somebody else will replicate.” – Jeff Bezos, Amazon founder

Disparate data management systems rife with inefficiencies and security vulnerabilities that continue to get used at a time of increased regulatory demands are turning data ownership from a strategic asset to a liability nightmare.

The reliance on third-party intermediaries to facilitate the transfer of real-world assets has also become a significant burden for businesses that must increasingly conduct their operations in the digital realm.

Intermediaries are impeding the free flow of business and slowing global economic growth. They are preventing companies from entering new markets and developing new business models.

Companies must have the courage to release themselves from established systems and business models of the past if they want to secure profits in the future.

Find out how blockchain technology can transform global supply chains, insurance, compliance, civil services and national healthcare systems

Anthony is the head of content and research at Intrepid Ventures. He has spent the past several years researching and analyzing technologies and working with a diverse mix of blockchain companies to help them gain insight and develop authoritative content.

Realizing the revolutionary nature of blockchain technology and the existence of a significant knowledge gap among entrepreneurs, industry, and government, Anthony now concentrates his time on creating educational content, researching potential use cases and analyzing the impact of the technology on global industries.


Also published on Medium.