How blockchain can make digital ID more secure

Could a blockchain-based ecosystem strengthen the security of digital ID and future-proof the next generation of online interactions?
Digital Id Blockchain

Perhaps the most valuable asset we have online is our identity. It allows us to buy and sell goods, even open a bank account. 

It’s understandable then, that users might have qualms about trusting their identifying personal data to blockchain (the technology behind crypto), which has experienced more than $1bn (£0.87bn) in fraud since the start of 2021

Trust, though – along with greater security – is the object of the exercise. Blockchain-based digital ID is based on the principle of self-sovereign identity (SSI), whereby users can share selected information with vendors or service providers instead of their entire identity. The analogy is of a person walking into a bar and presenting a trusted credential that only showed they were of legal age to buy an alcoholic drink – instead of presenting an ID card that might also reveal their name and address details.

SSI means that the interacting parties know they can trust each other because they can see the key information in question. And blockchain-based digital ID could make this a reality. 

“This is significant because currently there isn’t a way for businesses online to interact with contractual trust in a peer-to-peer way that isn’t intermediated by a third-party login service,” says John Jordan, executive director of the Government of British Columbia’s Digital Trust Service, which is starting to implement blockchain-based ID systems for citizens and local businesses. “Blockchain presents the opportunity to have confidential friendships and business partners on a foundation of trust.”

Seamless authentication

As well as trust, one of the biggest benefits of a decentralised blockchain ID would be interoperability. The current digital identity experience is fragmented; there are multiple platforms and logins globally. Verifying credentials across these platforms is costly and time-consuming. “Interoperability across chains can result in a bigger ecosystem, allowing businesses to reach out to a wider audience,” says David Palmer, blockchain lead at Vodafone Business. “Blockchain can act as a ‘network of networks’ to achieve this.”

What’s more, with interoperability will come automation, allowing companies to verify user data across industries without having to contact different sources or report to multiple regulatory bodies. For example, the Government of British Columbia has implemented an automated system for business licensing rights via a verified credential. As Nathaniel Amann-Blake, assistant deputy minister at the British Columbia Ministry of Energy, Mines and Low Carbon Innovation, explains: “Blockchain has been critical in improving efficiency, automation and trust in this sector, where there has always been a large and changing regulatory landscape.”

While blockchain might not be corrupted technologically, without the right governance and change-management controls in place, other areas may fall short

Automation will also become increasingly valuable if digital spaces such as the metaverse catch on. “If in the future we will have digital personas crossing into different digital platforms, there will need to be full automation of ID verification, as there won’t be people around to verify things at each digital border,” says Palmer. 

There’s also a case to be made for blockchain-based ID reducing fraud. Most digital IDs are currently stored on centralised databases, making them a honey pot of information vulnerable to accidental exposure or deliberate theft. “As blockchain IDs allow companies to only hold specific pieces of data, it’s almost impossible to be hacked,” says Daniela Barbosa, executive director at the Hyperledger Foundation, an open-source creator of distributed ledgers. “It’s also more efficient and cost-effective as you are processing and storing less data,” she adds.

Rethinking customer data

Unsurprisingly, there are implications too for how businesses might look to monetise customer data. “Decentralised SSI gives customers the ability to opt out of certain types of data being shared with a company, for example when they buy something. Customers may now look for some sort of reward for sharing their data. There is a real opportunity here for businesses to reshape their business models to see how they can add value from this,” says Palmer. 

It will all come down to business leaders thinking carefully about the data collected and the implications of that for the entire business. For Taylor Monahan, global product lead at crypto wallet provider MetaMask, “The key is to not default to accepted norms such as offering sign-on with a single button but to think about the relationship with customers, to use this new technology to unlock new capabilities for users and to empower them.”

That means now’s the time for business leaders to start investigating real-use cases for blockchain-based ID. Many of the current examples of implementation are no longer pilots but genuine replicable models. “What we need to do now is to understand the value of these new business models,” says Heather Dahl, CEO of Indicio, which has partnered with Google to offer a trusted digital ID ecosystem for companies via the Google Cloud marketplace. “This could even be within a business to overcome departmental silos,” she adds.

Of course, the adoption of a blockchain ID system would also require significant employee engagement across departments, from legal to marketing to HR, to meet the necessary Know Your Customer rules, privacy regulations or Web 3.0 standards. 

“We need to start building and testing these systems to ensure the right level of privacy, transparency and security,” says Andrew Thomson, a senior analyst specialising in blockchain technologies at Johnson & Johnson. “While blockchain might not be corrupted technologically, without the right governance and change-management controls in place, other areas may fall short.” 

By 2030, the ID2020, a UN alliance of industry, government and academia, aims to achieve universal digital ID using blockchain and, so far, the role of government has been key. The development of the existing use cases has largely been the result of collaboration between open-source communities such as the Hyperledger Foundation and governments around the world. 

Thomson believes that there is a real opportunity for blockchain ID to be implemented in a way that benefits people – for example in voting or social security. “Ultimately, government must be highly supportive of whatever solution is finalised, so that it gains the level of adoption and trust needed by industry,” he says. “Once we start demonstrating use cases that make a difference, that will drive adoption.”

Monahan too is optimistic. “It’s important to think openly about the potential of blockchain technology and ID today. There is unimaginable value when people are empowered and have the confidence and space to innovate.”