Blockchain technology has managed to infiltrate nearly all industrial sectors. At first, it was mainly used by cryptocurrency enthusiasts that wanted to buy Bitcoin with credit card and transfer it online.
However, since the appearance of smart contracts, this innovative technology saw its use cases skyrocket overnight. Today, we can see blockchain applied to healthcare, agriculture, logistics, and even the entertainment industry.
That said, the properties of blockchain can be extremely helpful to another sector – digital identity. In this article, we take a closer look at how blockchain and cryptocurrencies can be utilized to record our ID and used for tracking travelers and individuals around the world. We will also discuss the impact on privacy and whether this solution could really replace the identification system that most governments around the world use today.
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How does blockchain technology work?
Before we can discuss how cryptocurrencies and blockchain can be applied to ID, let’s have a quick overview of the technology itself. Blockchain was implemented in 2008, to record bitcoin transactions in a decentralized and immutable manner.
Blockchain relies on a distributed digital ledger where every transaction on the network is timestamped and permanently recorded. The distributed part implies that an exact copy of the ledger held by thousands of computers over the globe.
This decentralization provides multiple benefits, including:
- Security – the network doesn’t provide a single point of weakness that hackers or malicious actors could exploit. Consequently, it’s considered much safer than centralized, server-based systems.
- Immutability – every participant in the network holds the other participants accountable for the integrity of the data they provide. As such, the data cannot be modified, duplicated, or falsified.
- Transparency – the ledger is available 24/7 for anyone to consult. Every transaction is public, providing a trustless environment.
- Traceability – every asset recorded on the blockchain is easily and immediately traceable. Consequently, proof of origin and live status updates of the record is instantly available at all times.
These properties have allowed the price of cryptocurrencies to skyrocket over the years and become a mainstream asset.
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Why use blockchain for ID?
Considering that our traditional identification systems are archaic, centralized, and insecure, blockchain can be used to solve many recurring issues. We can use blockchain and crypto to create a tamper-proof system, that is easily interchangeable and where everyone can seamlessly interoperate.
Digital ID for businesses
Businesses collect a lot of personal data from their clients which is stored on their servers. Securing these servers requires a lot of resources and there have been many cases of data breaches because of low-security protocols for ID. Data security is both expensive and time-consuming when done right.
Moreover, once the data is properly secure, it becomes hard to access even for those that are meant to use it. Blockchain can provide a cost-effective platform for conserving data securely, while at the same time making it accessible for all those that need to access it.
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Digital ID for individuals
Our identity is essential in our everyday social lives. We use it daily to access government services, pay our taxes, drive our vehicles, travel, etc. That said, these systems are always centralized and expensive to run.
Often, systems like these still rely on paper-based archives, with birth certificates and records held in some government agency basement. And of course, because this system is centralized, it is often subject to loss, theft, or fraud.
In 2019 alone more than 14 million individuals were the victim of identity theft, most of them because of government data breaches. Blockchain solves this issue as it provides full ownership of the data to the person that holds the private keys to the records. And because this data cannot be duplicated and is easily verified, ID fraud becomes nearly impossible.
Finally, ID on the blockchain allows individuals to share their data globally, as their documents are readily available anywhere. Lack of access to proper identification is a recurring global problem where 1.1 billion people do not have proof of ID.
Blockchain could provide these individuals with a reliable and cheap way to prove their identity. This should increase their chances of actively participating in their country’s political and economic ecosystems.
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Privacy controversies and issues
That said, blockchain does come with some caveats. One could argue that ID on the blockchain can be used to trace every movement of the individual, reducing their privacy. The lack of confidentiality due to the transparency of the ledger could be a problem, especially when regarding sensitive data such as ID.
Blockchain technology is evolving every day, and its use for digital identity can bring numerous advantages to businesses, individuals, and the governments that adopt it. However, it does come with some privacy issues that need to be addressed as well.
Moreover, switching to a blockchain system for ID can be a long, tenuous, and expensive process. While some countries might be ready to take the step forward, others might not have the needed resources to go forth with this evolution in the near future.