Identification on blockchain: what you need to know about Digital ID
Digital ID on blockchain is the future of state and financial services. Distributed ID allows people to manage their own personal data. Besides preferences, however, that opportunity brings a number of threats.
In the old days, it was almost impossible to identify a person on the Internet in other way but through one’s IP. Indeed, among the hundreds of thousands of nicknames and avatars is not so easy to determine which of the people in the physical world owns the account. In order to simplify this procedure, there is a Digital ID. That’s a kind of digital passport with a built-in electronic signature and biometric data, that allow you to verify the data and identify the person when receiving the necessary services.
For example, in Estonia, citizens can open a bank account, sign documents and conduct business using Digital ID, even being hundreds of thousands of kilometres away. Therefore, in terms of development of e-democracy and e-commerce, digital identity is a necessary attribute of modern life.
What decentralised ID is
Companies, working on identity management spend billions to ensure the ease of use, security and privacy of their users. According to NEC Corporation, by 2021, the credentials managing market will grow from $ 8 billion to $ 14.8 billion. And with the FATF mandatory requirements to identify sender of
crypto payments, this amount will only grow.
At the same time, the emergence of innovative technologies, such as
blockchain, is transferring the personal data market to a new area. After all, it is often the case when to be able to use the Digital ID users provide each company with their personal data that are to be stored by the latter. However, it is not known how this data is and will be used and whether they are not to be resold to third parties. In order to avoid such situations, the blockchain allows the Internet user to store all personal data independently and decide for himself who should be provided with access to one’s personal information.
Many companies are working in the direction of the development of distributed IDs. And one of them is Fujitsu Laboratories, which has created a technology for the
exchange of digital identities. As a result, developers hope to increase the security of online transactions and thereby reduce the risk of fraud during online money transfers. The developed system allows one users to confirm the identity of other people and build a rating system of platform participants based on this data and communications.
Fujitsu Laboratories approach is quite clear. Indeed, according to a Javelin study, banks lose somewhat between $15 billion and $ 20 billion annually only from identification fraud.
At the same time, according to McKinsey, ID on the blockchain will allow banks to save around $1 billion in operational costs. Meanwhile, losses from fraud can be reduced to $7 billion - $9 billion.
Who develops a decentralised ID
Another player in the decentralised ID market is IBM Verify Credentials. So far, the tech-giant has released an alpha version of its development based on Hyperledger Indy DLT. That’s permissioned blockchain, which provides data recorded in the registry, on request. It allows the network user to decide whether to open access to their personal information to various service providers or not.
Developers expect that this system can be used in health care, for example, to determine insurance claims for an appropriate medical certificate. And also in the field of
finance. For example, banks may issue loans based on customer income data or certificates of employment.
To implement this idea, IBM is working with the Decentralised Identity Foundation (DIF) and the World Wide Web Consortium (W3C) to create open standards for digital distributed IDs. It is worth noting that Microsoft also collaborates with these companies to create its decentralised ID (ION) (Identity Overlay Network) ecosystem, which works on the basis of the bitcoin blockchain. Among the advantages of using the system is all the same security and full possession, and disposal of your private information.
ID calls on the blockchain
However, in addition to the “advantages” of owning personal information, there are also “minuses”. After all, as it’s well known, in the event of loss of access to a private Bitcoin wallet, its contents will be irretrievably lost. And, probably, something similar can happen if the user loses access to his personal data.
“An open question in the community now is how to cope with the recovery of a Decentralised ID if control is compromised as a result of theft or loss of access keys or devices. We believe that if users really own their digital identities, the development should be designed in such a way that users have the opportunity to recover their keys on their own,” writes Microsoft in its white paper product.
In addition, if traditionally all responsibility for creating and maintaining registries lies with the state, in the case of the blockchain, it is transferred to the end user. However, it is unclear who will be responsible for errors in the database and how data will be restored in case of loss of access to them.
We also need to understand that the development of decentralised ID doesn’t make sense if the product is not widely used by the state and corporations. It does not matter whether it concerns payment systems or public services. The architecture itself provides for a huge number of players and for the compatibility of these databases, uniform standards of such systems are required, which the Decentralized Identity Foundation and the World Wide Web now work on.
Regulation of this matter is also needed. After all, Decentralised ID is in its essence a digital reflection of any other ID. And for this, regulators around the world need to introduce this concept into the legal field.
Author: Annabella Lapshin