Digital ID Is Coming — But We Need To Make the Right Choices
We are living through an age of digital ID transformation. An estimated 120 countries are now deploying electronic passports, and over 70 countries are implementing digital ID cards. Digital IDs save time and money on admin, issuance, and replacement. They are more secure at a time when fraud is climbing rapidly, and they have been essential for many services during the pandemic.
Digitally presentable credentials are now involved across areas as disparate as vaccination certification, anti-money laundering and terrorism legislation, and property conveyancing. And open banking regulations in the EU and elsewhere have helped create a new universe of services to enable people to prove their identity and financial status.
These changes will benefit both governments and their citizens in a technology-first world. However, despite these changes, a rush to market could have dire repercussions for individual privacy and data protection.
Data security is in crisis
Data security is in crisis, with fraud and financial crime rising. In the US alone, the total combined cost of identity fraud losses climbed to $43 billion in 2020.
Existing systems have proved difficult to adapt to as well. In a recent survey of nearly 3,000 Regulatory & Compliance Managers, 65% of respondents admitted that the crisis had forced them to take shortcuts with their KYC requirements. Before the pandemic, fewer than half of surveyed companies had been subject to due diligence checks. Now, in its wake, that number is shrinking even further.
As a result, many organizations across the globe have done little to prepare for digital IDs. They are waiting for clarity on whether digital ID will be accepted in legal and regulatory processes such as due diligence, where rules and guidelines around establishing and retrieving digital IDs remain unclear.
Same too for liability for losses. Currently the responsibility of any organization that is the victim of fraud, this too becomes unclear when a digital ID provider is involved. And they are waiting to be sure they know what best practice looks like.
This is just the business perspective. For individuals, fraud engenders a sense that we are no longer in control of our data. And most anti-fraud measures, such as passwords, cause intense dissatisfaction. Almost half of younger office workers view security tools as a hindrance, with nearly a third trying to bypass security policies to get work completed.
Most of us just want to authenticate ourselves by who we are, not what we can remember.
Putting trust back into digital ID
What’s missing from our current structure is trust. Businesses, customers, and regulators need trusted transactions, and the only way to deliver this is by establishing a persistent, verifiable digital identity. This not only establishes trust but maintains it through every interaction, for the entire life of the relationship between consumer and service, even across multiple products.
The good news is this type of identification system is now possible, thanks to a combination of emerging technologies and forward-thinking protocols.
The solution lies in self-sovereign identity (SSI). SSI grants individuals control of their digital identities, rather than allowing a central authority or third party access to do as they like with user data. SSI addresses the difficulty of establishing trust in an interaction by creating a so-called “trust triangle.”
One party in an interaction presents credentials to the other parties, who can each verify that the credentials came from an issuer they trust. And throughout the process, neither the issuer nor the other parties you are dealing with can access your personal information.
Creating trusted transactions with SSI
There are various ways to achieve this, technically. These include leveraging Decentralised Identifiers (DIDs), Verifiable Credentials (VCs), and Key Event Receipt Infrastructure (KERI). All these solutions use cryptography, zero-knowledge proofs, and blockchain elements to create systems of identification that are virtually impossible to fabricate.
DIDs enable users to prove their credentials independent of any centralized registry. VCs can verify this information without giving away their personal data. Infrastructure approaches like KERI allow identity verification with or without a blockchain and can even operate offline.
Combining these techniques with biometrics and unique identifiers makes it possible to foster truly trusted transactions. These transactions are secure and linked to unfalsifiable user features, like fingerprints or face scans. AI can also monitor for patterns of behavior that point to illegal activity like money laundering or terrorist financing.
And because the data can be independently confirmed by everyone, the need for blind trust is replaced with trustless veracity.
New ways of interacting
This approach creates hugely positive impacts. Consumers and businesses both feel the benefit of trusted transactions in account creation, moving digital assets, making payments, and when using services. It makes for frictionless, secure customer experiences. Fraud and false positives are largely reduced. And there are major improvements in privacy, security, compliance, efficiency, and time to market.
All of this will revolutionize many consumer interactions with commerce and the economy – specifically in financial services, digital assets, recruitment and onboarding, micropayments, travel, and gaming.
Digital ID is coming, and we now have the technology to make sure it works to meet everyone’s interests. The only real question left is: Are you ready?
Companies Offering Crypto Mortgages Likely Scams
1. What did you find interesting, surprising, or unexpected about the previously mentioned news and facts and why?
I’m never surprised at the ways people attempt to integrate crypto into the real world, but I don’t necessarily think a crypto-backed mortgage is any safer than a mortgage-backed security. The biggest problem with a crypto-backed loan is the volatility. Taking a loan against crypto assets puts you in a vulnerable position if the price lowers substantially like it did over the past six months. At that point, a crypto loan service like BlockFi would essentially margin call you. What happens when your house is on the line? Foreclosure? This adds unnecessary risk to an already risky house purchase.
2. Please explain how this crypto mortgage product works and what is involved, in layman’s terms that readers can understand. How is the loan paid for, amortized, etc.?
I don’t work for the company, so I couldn’t speak to their exact mechanics.
3. How is a “crypto mortgage” different from a traditional mortgage loan?
There’s no way that the mortgage is underwritten in crypto. Your bank is simply a loan service provider – the actual lender is typically a government-backed agency, like Fannie Mae, Freddie Mac, USDA, VA, etc. Those agencies are not issuing mortgages in Bitcoin, or you would’ve heard about it. That means you’re inserting this crypto mortgage provider as an intermediary into the process. You would be better off just taking a regular crypto-backed loan that’s not attached to your house and using those funds to secure a conventional mortgage.
4. Who’s a good candidate versus not a good candidate for getting a crypto mortgage and why?
Anybody who experienced these astronomical 1000x gains in crypto surely have much more of their net worth now exposed to it. It’s always good to diversify your funds, and using crypto gains to buy a house is a better option than spending that same money on an NFT of a monkey.
5. What is your prediction: Will crypto mortgage products and crypto mortgage providers increase and become more popular, or is this a fad that is destined to fade?
This will never work out, in my opinion. Perhaps I just know too much about the inner workings of the mortgage industry and crypto to believe it. Fortunately for this company, most people are in the dark about both. This means they could likely make some good money for a minute, but it would inevitably lead to problems as the crypto market fluctuates and people are foreclosed. This isn’t a well thought out business model.
6. What should readers consider carefully or even avoid before committing to a crypto mortgage?
Read the mortgage contract very carefully. The last thing you want is to become homeless because Bitcoin’s price dropped lower than your house value.
7. Any other thoughts, tips, or suggestions on this topic?
A better usage of crypto is to put property records on NFT. We like to think of NFTs as just art, but they’re not even that. The JPEG doesn’t actually exist on chain, just a record of ownership. And that’s the perfect use case for the technology.
Right now, if you want to get a county property record as a major lender, you often need to send a person to physical county court. These courts are especially slow in upgrading technology. And, of course, that’s a much harder road for an entrepreneur to travel, so instead we get Bitcoin-backed mortgages that remind me too much of mortgage-backed securities.
Can DAOs Replace VCs as the De Facto Funding Route for Startups?
The debate over VC funding of Web3 is a highly nuanced one. While it can be argued that pioneering Web3 projects needed VC funding for early-stage development, the emergence of decentralized autonomous organizations (DAOs) is turning the tide toward user-led and governed projects that can bootstrap themselves without handing over a controlling share — eschewing centralization altogether.
This debate was recently revived by Twitter founder — and now-former CEO — Jack Dorsey, who took aim at the venture capital sector’s supposed overreach into Web 3.
While Dorsey’s position that Web3 is simply a plaything for VCs is somewhat hyperbolic — the point still stands. Centralization of Web3 projects (be it corporate control or centralized infrastructure) spells trouble for transparency and, more importantly, decentralization.
However, whether we like it or not, VC money is currently critical in order for small businesses to compete with incumbents. But that might not be the case for too much longer.
The argument for decentralized fundraising
Blockchain technology has ushered in the creation of businesses that allow users more control over the services they choose to use. These emerging services turn the top-down approach of traditional tech firms on its head, allowing patrons to become the owners and investors of a new generation of Web3-based games, apps, and companies.
VCs currently have a monopoly on decision-making in their chosen investments, giving them the power to dictate critical judgments and the direction of these companies. While this sounds fair in theory, this can also mean that critical decisions get slowed, or the original vision for the company diverges entirely.
However, under the Web 3 model, it makes sense that start-up funding should be as decentralized as the infrastructure that underpins it. Decentralized fundraising via a token governance structure means that anyone — regardless of their ethnicity, creed, or financial status — can get involved and benefit from being part of a like-minded community of peers, removed from the hierarchical structure of the standard business model.
By adopting this new model, and repudiating the central gatekeepers of Web 2, a new form of business can emerge that no longer needs to rely on harvesting the data or push nuisance advertisements to their users in order to survive. Moreover, this also stands to level the playing field with entrenched big tech companies by offering tangible incentives for platform usage and genuine governance over their chosen services.
Put your money where your mouth is
This isn’t simply a notion — it’s happening right now.
ConstitutionDAO is a true underdog story that demonstrates this process perfectly, highlighting what it truly means to decentralize the fundraising process. Launched in November 2021 by a group of crypto enthusiasts, ConstitutionDAO, as its name suggests, was a bid by a DAO to buy the first printed version of the US Constitution.
ConstitutionDAO raised nearly 11,000 ETH (just over $45 million at the time), more than double the estimated purchase price of $20 million. While the intense bidding war ended in a loss for ConstitutionDAO, the group made history by showing that a collective of like-minded individuals could come together and take on larger entities without a centralized funder.
Aiming to galvanize this community-first approach to business building, the Internet Computer, a public blockchain that hosts smart contracts that run at web speed, is preparing to roll out a network-wide governance system. This will allow individual services building on the blockchain to turn themselves into DAOs, permit voting controls, and leverage the power of decentralized fundraising to earmark capital for development, incentivization, or a community treasury.
VC control of Web 3 is only half the battle
Beyond rejecting the tired business models of big tech, the true centralization threat is the fact that Web3, in its current format, is more like Web2.5. Many ‘decentralized’ projects masquerade as Web3 services when, in reality, they heavily rely on cloud providers such as Amazon Web Services to serve their frontends — this, unfortunately, includes Ethereum. The internet computer is the only blockchain capable of serving web content directly to end-users without employing third-party cloud servers.
Web 2.5: Why Do So Many Blockchains Rely on Centralized Corporate Clouds?
Business leaders from a range of industries will have been exposed to the sales pitch emanating from the emergent blockchain space in recent years – one which promises a decentralized technical structure, simplified management, increased security, and vastly reduced overhead costs.
In fact, although the White House considers Bitcoin a national security threat, it also believes zero-trust architecture is the solution to the nation’s cybersecurity. Blockchain technology was always designed as zero trust, and business leaders should be emulating this response by integrating it into their tech stack.
This promise of zero-trust on decentralized ledgers needn’t be scoffed at prematurely, no matter how many times you heard it over the past four years. The blockchain space has borne its own unique fruit based on these principles already, and companies from existing industries are already starting to experiment with its tools and sample its wares.
However, one particular aspect of the pitch made by the blockchain technology suite that should probably be looked at with a more skeptical eye is the baseline promise of decentralization itself. As it stands right now, web3 is just more of the same pains you’re experiencing today, and “zero trust” would better be defined as “less trust.” But that paradigm is soon going to change.
Is the Decentralized Web Truly Decentralized?
While it’s true that the technical structure of the blockchain provides a less centralized arrangement than most businesses currently operate in, its position as an internet technology still presents some inherent problems.
According to current data from independent analysts at Ethernodes, some 68% of Ethereum nodes are currently running on centralized cloud servers. A sizable chunk of those – 49.5% of the total – rely specifically on Amazon Web Services alone. This effectively ties the uptime of Ethereum – a decentralized blockchain product – to the operational capacity of a single centralized service. Consider that entire swathes of AWS’s services went offline on three separate occasions in December 2021 alone, and the precarious nature of this arrangement becomes readily apparent. (In this instance, Ethereum itself was unaffected, however the uptime of a range of web-based enterprises, including Slack, Asana, Hulu and the Epic Games Store, experienced instant knock-on effects).
Blockchain nodes are essentially copies of the blockchain distributed across various computers around the world. Whereas a company’s transaction log-book might normally be held in a single data center, the blockchain’s ledger is stored on hundreds, thousands, or potentially millions of individual computers and data centers simultaneously. This makes them almost impossible to corrupt without immediately alerting the rest of the network, and guarantees uptime by multiplying their operational scale beyond any one geographical location.
But if a majority of a given blockchain’s nodes are running on just one cloud server, as in the case of Ethereum and AWS, any potential benefits provided by the blockchain’s decentralization are effectively nullified. Should AWS go down for any reason or become compromised, a large chunk of the Ethereum network could be knocked offline. Essentially, by migrating to Ethereum, you’re still susceptible to the same problems of simply hosting your infrastructure on AWS yourself directly.
The disruption of blockchain nodes naturally causes the applications based on their network to fail, or operate at reduced capacity. Having a large portion of nodes fail at one time could also disrupt the financial rhythm of the blockchain, and subsequently affect the price of any underlying cryptocurrency token associated with it. All of this becomes an even scarier prospect in the case of Ethereum specifically, since it acts as one of the pillars of the decentralized finance (DeFi) ecosystem – a technological arena that seeks to displace existing financial systems.
One Computer – One Node
The original idea put forth by pseudonymous Bitcoin creator Satoshi Nakamoto when the first ever blockchain network was launched in 2009 was that every computer on the network acts as its own free-standing node. This was meant to ensure decentralization, and the resultant security and reliability that comes with it. This concept is naturally thrown up in the air, however, when thousands of nodes decide to base their operations on the same cloud service.
Adding to this problem is the prospect of censorship. Even if AWS were to miraculously secure 100% uptime, the ominous fact remains that, like most large web corporations, Amazon’s operational direction can still be decided by just a small handful of influential executives and stakeholders. Were Amazon to suddenly take a renewed political stance on a given issue, enterprises who have based their operations on a blockchain associated with AWS would find their services arbitrarily cut down due to the whims of a single entity. Here we needn’t stretch our imaginations too far to see that government meddling – a factor the blockchain space was partially set up to circumvent – also becomes a potential vulnerability, given the technology sector’s subservient reactions to government dictats.
This should set alarm bells ringing in the ears of enterprises who seek to use blockchain technology as a way to reduce their operational vulnerabilities by spreading any possible attack points over a wider landscape. Although blockchain is described as zero trust, there’s still a dependence on large data centers like AWS and Google Cloud that hold a tight oligopoly.
Crypto price volatility is nothing compared to the losses that could be incurred from network outages.
While most enterprises may not have to worry about token prices unless they’re heavily invested in crypto assets, something as simple as a disruption to a firm’s data storage could have serious ramifications throughout their entire range of services. If, for example, an analytics or consulting firm built on blockchain technology experiences major downtime due to the disruption of a centralized cloud server, their inability to pull data from their blockchain storehouse could result in their entire operation grinding to a halt.
A single hour of IT downtime can cost a company $300,000, according to Gartner. What’s more, if a firm were to decide to on-board its customers onto their blockchain network as a way to conduct polls, or distribute rewards in a loyalty program, serious disruptions to the service could result in the loss of funds and personal details.
These are not examples meant to scare enterprises away from using blockchain technology, but represent some of the basic issues facing would-be blockchain users today given the space’s ongoing reliance on centralized cloud servers.
Breaking The Decentralized Web’s Reliance on Centralized Clouds
Instead of setting up on a blockchain that relies on a handful of cloud services – no matter how convenient it may seem in the short term – budding enterprises can already take advantage of blockchain services based on a more distributed hosting infrastructure. Globally distributed data centers which aren’t owned or overseen by any one entity present a more suitable option than the one-stop shops of AWS or Microsoft Azure, offering up the same decentralization promised by blockchain technology itself.
One example of a blockchain network leveraging this approach is the Internet Computer protocol (ICP). Internet Computer is an open, decentralized blockchain that launched on 48 independent data centers across the world when it launched in May 2021, spanning the United States, Europe and Asia. The number of data centers hosting copies of Internet Computer’s distributed ledger has since ballooned to over 120, and according to the latest data, the protocol has experienced smooth 100% uptime ever since it went live.
The goal of ICP is to create a blockchain network just as distributed as the internet itself, and eventually, to create a compute-ready internet on the blockchain.
For enterprises looking to reap the potential benefits of using blockchain technology, this setup offers the best of both worlds – the decentralized utility of the blockchain coupled with the distributed strength of the internet itself. Projects which store their data on ICP needn’t worry about losing access to their services or experiencing slowdowns due to a single failure point, given the widespread scale of Internet Computer’s starting base.
Ultimately – as seen in the example of Ethereum – the utility of blockchain networks can still be limited by the wider technological arena in which individual node operators base themselves. But these limitations need not exist, and node operators only have to set up their operations in a way that complements the blockchain technology they are already running.
For businesses intrigued by the blockchain space, but who also remain skeptical of its myriad of promises, the threat of precarious centralization and unexpected failure points has already been voided. Whether enterprises find blockchain tech to be the answer to their scaling and cost ambitions will depend on the nature of the business in question, but for team leaders eager to experiment with the latest technological innovation offered up by the Web3 explosion, the safety and security of doing so should no longer be a major concern.