The challenges of dealing with digital identity

Like many, I’m still working on the idea of authentication, verification and identification using immutable technologies or, more specifically, distributed ledger technologies (DLT). There are many firms active in this space, trying to create digital identity systems using DLT, but it is far more complicated than such a simple solution. The reason is that the solution has nothing to do with the technology. It is all about agreements between governments, financial institutions, business and citizens.

This is something I blogged about ten years ago – YES! TEN YEARS AGO:

The Waterfall Effect: why blockchain is still a decade from mainstream - Chris Skinner's blog, December 2015

The building of the real-time, almost free financial network on the internet using blockchain and mobile will take about a decade at least before it becomes mainstream.

I could just reshare that blog from ten years ago, as it makes a number of fundamental points:

I’m not talking about incremental innovations here, but fundamental ones.  The rebuilding of the whole financial markets using shared ledgers.  The inclusion of 7 billion people in the financial network through mobile.  Those are the big ticket items.  Another user of Stripe is interesting, but it’s not the massive change we can see coming downstream.

Specifically I called it The Waterfall Effect. This is the idea that until you have agreements between governments, financial institutions and business, nothing will change.

Ten years later, I am surprised to find that those agreements are still off the table.

In particular, let’s look at things like money laundering and digital identity, two of the topics that we talk about all the time and believed that blockchain and DLT would be the solution. It seems to me that we have gone nowhere. Sure, there are loads of companies involved and trying to create solutions, but there does not appear to be any solution out there.

Let’s focus on one area: Politically Exposed Persons (PEPs). Under anti-money laundering (AML) rules, PEPs are meant to be identified and excluded from the financial system. SWIFT and the banking community have been discussing this for years. So, where are we today?

HSBC breached money laundering rules in Switzerland, watchdog says

It happened through its Swiss private bank which deals with higher-net worth customers. 

Jeremy Hunt 'denied a bank account by Monzo' amid row over anti-money laundering rules | Daily Mail Online

Former UK Chancellor Jeremy Hunt has been revealed to have been denied a bank account with Monzo amid an ongoing row over 'laborious' anti-money laundering rules in relation to so-called 'Politically Exposed Persons'.

MP Brandon Lewis claims Tory activists struggle to get mortgages

An MP has claimed Tory activists who have volunteered for him have struggled to get mortgages because banks consider them politically exposed persons (PEPs). 

The list goes on and drips into the whole debanking thing ... in other words, for all the discussion and efforts around authentication, verification and identification, we have pretty much gone nowhere. If anything it looks like we have gone backwards. One step forward and two steps back would be my view. Digitally, we are moving forwards but, thanks to digitalisation, we have distributed risk to many places that no-one can keep up anymore.

The risk of onboarding the underworld is now so distributed that no-one knows what is going on. More than this, it means that core mission to have a digital identity is spread all over the place. Maybe that’s what DLT means … distribute everything so much that no-one knows where it is.

And, finally, this means that there is no way to unite governments, financial institutions and business in a singular focus on digital identity using blockchain and DLT, because no-one can agree on what it means, how it works and how to use it.

Ho-hum.