Digital Identity: How a Cryptocurrency Could Lead to the Most Fundamental Change in Identity in Centuries

May 2, 2017

Long viewed as the anonymous, digital currency used by those in the illicit drug trade, the technology that makes Bitcoin secure (known as blockchain) is about to radically change how we identify ourselves. More fundamentally, the very concept of what identity means will be altered over the next five to ten years. This paradigm shift will have widespread implications for developed and developing countries, where the lack of trusted institutions has led to large numbers of people being effectively unbanked. Yet, this should not be surprising given that Bitcoin is not actually anonymous—to the contrary, it is very transparent—nor is it a driver of the illicit drug trade. If every bitcoin in existence was used during this year to buy illicit drugs, it would only account for approximately four percent (4%) of the global drug trade. Based on its universal acceptance and truly anonymous nature, the number one currency of choice for drug traffickers around the World is the United States Dollar.

When applied to identity or information about ourselves, blockchain shows promise of providing a means for people to store that data using public key encryption—an asymmetrical form of encryption impervious to brute force attack. While there are several blockchain-based identity platforms that rely solely on this aspect of the technology, several researchers are leveraging the power of data analytics and machine learning to further enhance the identity security provided by blockchain. Traditional anti-fraud software was good at identifying the occasional transaction that was determined to be suspicious—but in practice, its effectiveness was limited. Because of advances in artificial intelligence, especially in the areas of deep learning and pattern identifying models, analytics are becoming predictive in nature, which is incredibly more powerful than prior generations of technology. When these advances in artificial intelligence are combined with the secure, tamper proof nature of a blockchain, we are once again able to engage in commerce with significantly less concern about our identity being destroyed by another.

We are also able to move through our economic activities with far less friction. For instance, if you obtain a bank account at Bank #1, then from an AML/BSA perspective, there should be no reason for Bank #2 to request anything beyond what is necessary to determine you are the same person that opened the account at Bank #1. It’s important to note that control over the private key associated with a person’s identity should not necessarily result in a stolen identity. This is where the advances in AI add an additional layer of value, all made possible by its decentralized form.

Storing data, however, is not in and of itself a panacea, the real paradigm shift lies in the ability of individuals to have granular control over what they share with others. For example, if a person has an account with Bank #1and wants to open an account with Bank #2, then that individual may choose not to tell Bank #1 and provide more documents to Book #2. It’s this granular control over data and its dissemination that will ultimately unseat today’s incumbent technology giants from their near monopoly over the data we generate from our day-to-day activities, and finally return to each person what rightfully belongs to them—their identity. A fairly dramatic sea change is possible—all from a not so anonymous cryptocurrency.

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Take a look at the author’s recently published book, The Blockchain: A Guide for Legal and Business Professionals.