Blockchain’s First Revolutionary Product Could Be Online ID

0

In an interview, PayPal Chief Executive Dan Schulman recently discussed the prospects for blockchain – the encrypted, decentralized online ledger system that underpins Bitcoin and a myriad of other cutting-edge projects. While talking about blockchain’s potential to improve the way people make payments around the world, Schulman said:

We think blockchain technology holds great promise…but it really needs to do something that traditional rails [of the interntional payments system] can’t do. Most people think blockchain is about efficiency, but the current system is quite efficient. There are sometimes intermediates between the two, but the rails are quite effective. So we think a lot of interesting things that can happen on the blockchain are around identity, for example.

Schulman was referring to a debate over payments that has been going on for a few years. Without getting too technical, the main advantages of blockchain payments are that they are not controlled by intermediaries, so there are no fees to pay; and transactions cannot be hacked and modified once they are in the ledger.

But at the same time, they are still not as fast at processing transactions as the traditional system – which, as Schulman argues, is quite fast in any case. Regulation is also a major issue: the people at each end of a blockchain payment are completely anonymous. This presents major problems for everything from money laundering to being able to recover payments if you accidentally credit the wrong address.

Dan Schulman: Not desperate for blockchain payments.
Fortune Brainstorm TECH, CC BY

In short, blockchain-based payment technology is very simple, but policy and regulation are much more difficult. For PayPal, which relies on the international banking system, there is still no dispute.

the real you

So why was Schulman much more optimistic about blockchain’s prospects around online identity? Interestingly, it relates to one of the weaknesses of technology in payments: anonymity. Much of cybercrime results from not knowing who we are talking to. If we could all encrypt our online identities on blockchains so we can completely trust whoever is dealing with it, that could solve this problem.

This is not just theory: many interesting developments are in sight. Take the UK government, which like many countries is increasingly moving interactions with the public online. This includes benefits, taxation and other services such as passport and driver’s license applications. Yet, like all governments, it faces a major challenge in that citizens do not have unique online identifiers. It helps fraudsters steal nearly £50 billion worth of government services each year in the UK. For this reason, the government is currently exploring blockchain as a potential solution.

You know that makes sense.
Marcia Cirillo, CC BY

Another very interesting application, currently being explored by the British government within the framework of the same project, relates to voting systems. Blockchains could provide a way to ensure that everyone queuing to vote is who they say they are – or allow people to vote online, potentially with big turnout benefits.

Australia is also considering the idea, having recently tested the ability for voters in South Australia to identify themselves via blockchain technology for a minor council election. Meanwhile, New South Wales conducted a trial earlier in 2019 using blockchain for identity verification based on people’s driving licenses. It allowed participants to prove their identity and age for things like buying alcohol and gambling without needing a physical ID card.

The trials concluded that the technology is not yet sufficiently mature and that identity verification can still be better achieved with current technologies. Nonetheless, New South Wales is moving forward with a new large-scale trial of a blockchain-based driving license registration system in late 2019, covering some 140,000 license holders. allowed.

Another country to watch closely is China. He sees blockchain products as a good regulatory mechanism. Given China’s huge market, if the government decides to sanction (or even mandate) the use of blockchain-enabled online identity, it will give a phenomenal boost to the technology. It also raises the worrying prospect that the government would be able to monitor all of its citizens’ purchase transactions, should it introduce a system where it knows everyone’s identity on the blockchain.

The business opportunity

Many blue-chip tech companies are vying to be part of this blockchain ID future – highlighting the potential for a very large market. IBM is testing the “alpha” version of IBM Verify Credentials, a blockchain-based credential system for both businesses and governments. Based on typical software industry production cycles for large projects, a market-ready product could take two to three years. Microsoft is also developing blockchain identity systems based on its well-established and highly successful Azure cloud computing platform.

Identity accepted.
Andrea Danti

Either system could potentially provide the kinds of services that governments are beginning to consider. As for corporate customers, one application could be online retail, which attracts a lot of cybercrime. These systems could provide a reliable means of identifying a buyer to confirm they are authorized to pay. Presumably, this would be backed up by something akin to a transaction fee per payment. Considering the hundreds of billions of transactions that take place every day, the potential revenue could clearly be huge.

That’s why companies like PayPal can’t sit on the sidelines. Blockchain hype or not, you don’t want to be the Kodak of this industry, if or when encrypted ID becomes the next killer online technology.

Until governments in major economies around the world are ready to fundamentally overhaul financial systems to accept cryptocurrencies as common payment methods, the less glamorous business of removing identity verification from billions of payment transactions might be the safest bet. And since this is very similar to the paid business model that made PayPal a giant, it will be very interesting to see what Schulman does next.

Share.

Comments are closed.