The future of financial identity on the blockchain #Global #Decentralised #Aadhaar
By: Varun Deshpande
Tags: Blockchain, Bitcoin, Global, Identity, Aadhaar

In 2011, while I was still an undergrad and bitcoin was at $1, I came across an interview with Sean Parker, the founding president of Facebook. Sean spoke at length about his obsession with defining identity on the internet, which for the longest time was a completely anonymous medium restricting real social interactions. For him, the main problem facebook solved was about personal identity curated by your network of friends, thus unlocking genuine social interactions and creating a behemoth social network in the process.

This idea of using an identity layer for unlocking the potential of a network was fascinating. But the big question was, whether what facebook did for personal identity, could be done for financial identity as well?

Also, how would a bank of the future crack financial identity to enable access to financial services and use it effectively in a transparent lending platform?

Most governments realise that financial identity is perhaps the cornerstone in their fight against poverty and have gone to extreme lengths using their authoritative control to make their version of this identity. But clearly, solving for financial identity in any country, more so, one as big and diverse as India ain’t easy and can turn out to be a huge liability. The JAM trinity (Jan-Dhan, Aadhaar, Mobile) was a great step in this direction but very soon Aadhaar, without a course correction, could become a serious national security challenge of modern times. Even globally, people are losing trust in their governments to maintain their social and financial identity due to allegations of mass surveillance that arose in the post Snowden era.

Any discussion around financial identity is incomplete without addressing ownership, security and portability. Till now, banks and credit bureaus have all enjoyed complete ownership of your financial identity without any privacy control and zero portability. Instead, what we need is just the opposite — an identity platform that is decentralized, secure and global. Enter blockchain.

Financial Identity on the blockchain

A bank of the future needs to find a unique solution to provide financial identity in order to reach unbanked and underbanked population in the fastest and most cost effective way possible. A platform where users are in complete control of their personally identifiable information (PII) and one that provides universal portability to use all financial applications in the network. A platform that upholds financial identity with security and privacy (by using the network of certifiers, service partners and its users), and provides a unique incentive structure.

Certifiers act as nodes in the blockchain network to provide attestation to the user claim (the user being the identity owner) which the service partner can rely on to verify the identity through a 3 way smart contract signed off by all 3 parties. Currently, the identity systems we rely upon are paper-based and government owned, where every user is verified separately by each service partner, thus increasing the cost and time to use a service. By creating a 3 way network on a blockchain, service partners can now use the attested identity provided by certifiers instantly to enable service delivery. Most importantly the user (identity owner) is in complete control of his/her identity at all times since the data isn’t shared with any service partner.

Ownership & Security

Currently, all identity systems have massive centralized databases which are vulnerable to hacks, implying that users don’t have any control over who can view or edit their data and once hacked, even sell their data in the black market. The consequence of such hacking threats is that these databases work is silos and limit data access to 3rd parties, completely irrespective of their intentions. Thus, the data is always restricted within this ecosystem without it being portable in any form whatsoever.

A bank of the future will have its own unique identity wallet to store a blockchain asset that could be used by the user locally with a private and public key combination exactly like a cryptocurrency wallet. The private key would be known only to the user and he/she can validate an incoming request by signing off on the smart contract using the private key. All the personal documents will always be with the user on a local server and only the public key will validate the verification request by a service partner. This will ensure that data is never sent to a central server, making it a negative cost proposition to hack the system as each individual device needs to be hacked separately. Since the data never leaves the user’s device, this system would be in compliance with the sovereign data protection laws in all countries, thus creating a global identity platform.

Looking back, if a centralised version of such a global database had been created, it would have resulted in a monopoly, unlike any other, which would lock the user into the system forever, and indiscriminately charge service partners to use the identity platform. Hence, we need an identity platform that is completely decentralised and owned by the network so that the benefits of this growing community can be passed on to them. A blockchain asset in the form of sub-tokens could be that decentralising force.

A bank of the future could create a blockchain asset for financial verification in the form of sub-tokens which is used to incentivise, run and shield the network from volatility. The validators who’d verify a user would be issued sub-tokens for this service which would be paid for indirectly by the service partners who want to verify a user. Also, it seems natural that most validators including exchanges, crypto banks, fin-techs, lenders, investment firms, etc. would also be service partners and vise-versa. This would ensure an effective and decentralised sub-token economics and keep the validation cost in check. The same user who has already been attested by the validator can use other services by just requesting the validator to share a digital certificate with the service partner without sharing any data whatsoever. This model will ensure a global, decentralised and secure identity platform which can be used effectively by lenders, banks and fintechs to provide global financial services.

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