Blockchain in action: creating a digital identity

Most people at least know that blockchain is the technology on which bitcoin and other cryptocurrencies are built, but a digital ledger that timestamps and orders transactions in an easily traceable and immutable way has many more uses. .

In this fourth article in PYMNTS’ Blockchain in Action series, we’ll look at how a distributed digital ledger can create a sharable digital identity without giving up privacy and trust, as it cannot be tampered with or tampered with.

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We are not talking about the type of anti-money laundering (AML) digital identity, but the type of credentials you would need to present to a bank or cryptocurrency exchange to meet the requirements of know your customer (KYC) .

There are a few facets to this use of blockchain technology, known as token identity or digital identity.

One is privacy. We’ll get to the “how” later, but the idea is that people could have tokenized, and presumably biometrically accessed, ID documents that they can control, giving only the necessary details: is this person a citizen ? Yes. Does the company or agency collecting this person’s information now have their social security number in their highly hackable database? No.

Another facet is security. Using blockchain to create a distributed identity token rather than using the current system where various service providers all have highly hackable centralized databases of digital identity and connected data.

So what would blockchain bring? An unalterable record – immutable, in cryptographic jargon – that cannot be tampered with or altered.

What is won?

“National ID programs are growing in importance as countries strive to establish a unified database of strong and unique citizen identity documents to facilitate governance,” said Aravind Srimoolanathan, Senior Research Analyst at Frost & Sullivan in November.

By combining blockchain, artificial intelligence and biometric scanners, digital IDs will make transactions ranging from mobile banking to driver’s license registration easier and more secure, Srimoolanathan said, predicting that “identity single token digital for individuals” will be in place by 2030.

Read more: Deep Dive: How Blockchain Technology Can Help Ease Digital Identity Verification, Onboarding

Proponents say it will reduce identity theft and take away private data from tech giants and other companies by limiting what they collect, putting control back to the people.

In a 2021 study, PYMNTS and Equifax found that enterprise interest in digital identity is on the rise, with more than two-thirds of enterprises “planning to invest in digital authentication solutions to gain new customers” and also streamline their own internal processes.

And in the wake of the pandemic, nearly 40% of businesses that responded said digital identity verification was becoming increasingly important.

See also: The next wave: Enterprise adoption of digital identity protection

On the other hand, a digital ID system – especially a nationally issued system – is more likely to limit access to information that can be collected, either by design or by law. An employer would need access to degrees and qualifications, but would not need access to medical data, except for providing proof of coverage.

Read more: Deep dive: Why social media platforms need to rethink how they handle digital identity to maintain user trust

More broadly, a blockchain-based digital ID program that connects users to their data via a cryptocurrency token would be simpler, more reliable, and much easier to make interoperable across everything from private businesses to international borders. .

How it works?

The principle of digital identification based on the blockchain is really very simple. Most blockchain digital ID platforms typically have six parts.

See also: Crypto Basics Series: What is a Blockchain and how does it work?

• First an owner. The person (or thing) identified by the digital ID.
• Second, a blockchain on which the digital ID lives. The data here cannot be deleted or changed, but can be added. For example, if the owner graduates from college, obtains (or loses) a security clearance, or purchases health insurance.
• Third, a transmitter. A company or – often a state agency – that verifies the identity of the owner of the ID and signs the confirmation of accuracy with a private key that cannot be reused.
• Fourth, a digital wallet. The tool that allows people to create and enrich their digital identity over time, and allows them to provide access to service providers
• Fifth, a numerical identifier. The DID verifies that the person (or thing) is who they claim to be. This usually includes biometric data.
• Sixth, service providers. Agencies or businesses that accept digital identification as a means of accessing services or obtaining goods.

The front lines

This technology has already been tested in programs focused on the billion people in the world who do not have identity papers, ranging from refugees fleeing violence and oppression to the poorest people in developing countries. who simply cannot obtain ID – thus keeping them unbanked, unable to prove they own land, unable to vote and generally trapped in poverty.

Read more: From refugee camps to Indian coffee farms, digital ID is already being paid for to the poorest

This is largely thanks to the United Nations, which has made digital identification for all a development goal for 2030. As early as 2018, the United Nations High Commissioner for Refugees (UNHCR) began using documents blockchain-based digital IDs in Zaatari, a 75,000-person Syrian refugee camp inside Jordan, allowing residents to obtain monthly food aid payments and use them to store through a eye scanner.

See also: Securing personal identity with a digital ID connected to the user’s biometrics

Just last month, the India time reported that researchers are building a next-generation version of the country’s Aadhaar digital identity program, considered by far the largest digital identity system in the world with more than a billion users. Using both eye and fingerprint scans, Aadhaar links a person to a 12-digit ID number that can be used as a digital KYC document in virtually any interaction with the state as a preventative measure. from fraud and has become widely necessary for any type of business interaction, such as opening a mobile phone or bank account.