December 03, 2019

Government Issued Digital Identity: Unlocking the Potential of Blockchain

Originally published on Crypto Finance AG’s magazine, Building Blocks – Tokenisation & the Blockchain Evolution

From the founder of the Trust Square and Procivis AG, this article explores the seemingly utopian, futurist’s vision for a society using trusted digital identities enabled by blockchain technology. Why is this gaining relevance now? When reviewed against the backdrop of the emerging crypto asset market, increased visibility on international development agendas, and the emergence of successful use cases from pioneering countries, a new paradigm emerges. In this new context, blockchain offers transformational improvements to trusted digital identity and introduces the old world to evolving crypto technology.

Legal identity forms the foundation for any form of trusted interactions in the formal economy, ranging from access to healthcare to fulfilling KYC requirements to accessing financial services. With 1.1 billion people with no form of legal identity and a further 3.4 billion people with identities that cannot be used in the digital realm, well over a half of humanity is not ready for the digital world [1], [2]. Further, a vast majority of the remaining digital identities are smart cards with poor user experience and limited utility. There remains immense economic potential to be unlocked through a secure and user-friendly digital identity. McKinsey estimates that the deployment of a digital identity can add on average 6% to the GDP of an emerging nation and 3% in the case of developed nations [2].

A reliable digital identity – an enabler for mainstream crypto adoption

Discussions regarding the potential for a reliable digital identity to drive efficiency gains in KYC/AML activities, e-Authentication for eBanking, and access to financial services among underserved populations predate the advent of crypto assets. A 2013 study by Accenture on the future of ID in banking highlighted that 30% of all calls to bank call centres were due to forgotten passwords [3]. In India, a country that launched its digital identity programme in 2009, The Economist estimates that the cost of customer onboarding is likely to have fallen from 1,500 Indian rupees (USD 21.50) before the new programme to as low as 10 Indian rupees (USD 0.14) currently [4].

With regulation across geographies paving the way for institutional adoption, assimilation of crypto assets into the mainstream financial system is on the horizon. Yet, even in contexts with favourable regulation, the lack of a reliable digital identity can hinder financial institutions from engaging extensively in crypto. One of the primary factors preventing financial institutions from dealing with crypto is widespread inability of crypto holders to prove the origin and transfer history of their crypto assets. The relative simplicity in making such crypto transfers untraceable presents further challenges. Without established links between crypto wallets and physical individuals, and between the origin and ownership of such digital assets, the technology will remain questionable for mainstream financial institutions. Nevertheless, blockchain offers transformative potential in enabling seamless and universal access to trusted digital identities.

Why digital ID now?

For the first time, a number of factors are coming together to make universal access to a digital identity an achievable reality:

High on the international development agenda

Without legal identity, citizens struggle to access the most basic services, ranging from healthcare, education, housing, government services, and the most basic of legal protections. With 1.1 billion people lacking a legal identity, representing more than a seventh of humanity, they are invisible. This has been recognised by the international development community and is reflected in the UN Sustainable Development Goals target 16.9, by 2030 to “provide legal identity for all, including free birth registration” [5].

Successful cases from pioneering countries

A leading example of the power of digital identities to transform a country from the ground up is Estonia – a truly digital society. A digital identity enables citizens in the country to access 940 e-Government services, which helps the country save the incredible sum of over 1,400 years of man-hours in one year alone [6]. Furthermore, the eSignature has changed the way business is conducted in the country, leading to an annual savings of 2% of GDP [7]. India, a country of 1.3 billion, has proven with its digital identity programme that the transformational potential of this technology is not limited by scale. However, these countries face challenges, including privacy concerns with centralised storage of citizens’ data.

Enabling technology – blockchain and smartphones

Enabled by blockchain and the proliferation of smartphones, we have the opportunity to put digital identity firmly into the hands of citizens for the first time. Citizens can now have their government-attested identity data stored securely on their own devices with cryptographic proof of the authenticity of this data stored on the blockchain. The private keys that permit citizens to authenticate themselves and sign digitally are stored locally in the trusted execution environment of their smartphones, which can serve to eliminate centralised storage of login credentials by a multitude of internet service providers.

Solving blockchain’s shortcomings

As highlighted in the introduction, smartphone-enabled digital identities issued by governments are a reality in a very limited number of countries. Further, blockchain- secured identities in the government context remain rudimentary. On the technological front, while the rationale of using blockchain in the context of identities is apparent, technical standards are still emerging. The World Wide Web Consortium (W3C) is working on setting the Decentralised Identifier (DID) architecture standards needed to enable the widespread deployment of blockchain-secured IDs.

To further the adoption of standards, a number of projects are working on creating DID methods on a blockchain protocol level. While some build upon widely adopted public blockchains such as Ethereum and bitcoin, others, such as Hyperledger Indy, are working on purpose- built distributed ledgers to address the needs of digital identity. In May 2019, Microsoft came out with their own Sidetree-based DID network called Identity Overlay Network (ION), which works with the bitcoin blockchain. On an application level, entities, including ours at Procivis, are beginning to use these protocols to deploy blockchain-enabled digital identities in projects with governments. While these projects remain at a nascent stage of development, the transformative potential of blockchain-secured digital identities is very promising.

References

[1] https://www.worldbank.org/en/news/press-release/2017/10/12/11-billion-invisible-people-without-id-are-priority-for-new-high-level-advisory-council-on-identification-for-development

[2] https://www.mckinsey.com/business-functions/mckinsey-digital/our-insights/digital-identification-a-key-to-inclusive-growth

[3] https://www.accenture.com/_acnmedia/Accenture/Conversion-Assets/DotCom/Documents/Global/PDF/Dualpub_9/Accenture-Future-Identity-Banking.pdf

[4] https://www.economist.com/business/2016/12/24/indian-business-prepares-to-tap-into-aadhaar-a-state-owned-fingerprint-identification-system

[5] https://sustainabledevelopment.un.org/sdg16

[6] https://e-estonia.com/solutions/e-governance/

[7] https://apolitical.co/solution_article/e-id-in-america/