Identity has always been at the centre of business and society. Without it neither works. In the digital age and a world that spins ever faster, digital identity in times of fake news and surging cybercrime becomes even more important and vulnerable at the same time. Blockchain Technology is often named as a solution to the problem and here is why.
The Value of Blockchain Technology
Three years ago, the cryptocurrency market had not yet started its rise to the stars (almost), The DAO was in the middle of the ICO that would collect a then unbelievable amount of $150m (which a few weeks turned sour) and people started getting excited about Blockchain technology. At this point in time, the fine people of Goldman Sachs released a piece of Equity Research entitled “Blockchain – Putting Theory Into Practice”.
On more than 80 pages and seven case studies, the authors tried to explain why “Blockchain has captured the imagination of Silicon Valley and Wall Street alike”.
In the first of the seven case studies, the report focused on how Blockchain technology could help the adoption of the Sharing Economy on the example of Airbnb. The authors argued that by using Blockchain technology and its potential for a user to securely tie identity and payment credentials to a unique identifier, along with digital reputation information from verified reviewers, Airbnb (or other P2P service providers) would be able gain a number of substantial improvements:
– build trust in the Airbnb community through ID verification;
– increase trust in the booking process;
– secure payment credentials and automate release of funds upon contract satisfaction; and
– elevate the review system with blockchain-based authentication.
As a result, the authors estimated that “by enabling a secure, tamper-proof system for managing digital credentials and reputation, we believe blockchain could help accelerate the adoption of P2P lodging and generate $3 – $9 billion in incremental revenue opportunity through 2020.”
“We believe blockchain has the potential to help accelerate the adoption of the Sharing Economy by enabling identity and “reputation management” systems, allowing users to ”credentialize” themselves by validating their identity and past behavior. The Sharing Economy has already begun to unleash industry disruption by opening up significant amounts of previously untapped private capacity – in cars with Uber and in housing with Airbnb. However, user authentication and reputation is particularly challenging for lodging. With a secure, tamper-proof system based on blockchain, users can more easily credentialize themselves, which could increase ease of use and security for guests and hosts alike, driving accelerated adoption. In this case study, we describe our notional sensitivity analysis and how it suggests the opportunity for an increase in Airbnb’s booking fees vs. our base case of $2.7bn- $9.2bn cumulatively through 2020, with a potential negative RevPAR (revenue per available room) impact of 800-1,200bps for the US hotel industry.”
– Goldman Sachs Equity Research, May 2016
No small feat and regardless of the progress that Airbnb and others have been making in this area, this case study showed the immense intrinsic value of blockchain verified data. The report went on to explore the importance and value of digital identity secured through Blockchain technology – for example, in the seventh case study examined the application for AML and KYC Compliance and found that “blockchain could drive between $3bn and $5bn in industry cost savings through reduction in personnel and in AML regulatory penalties.
Adding up these numbers, the potential economic value is remarkable, but disregards the contribution on solving an imminent problem of the digital age that urgently needs a remedy and that would increase the importance of Blockchain technology even further.
The Currency of Modern Business
Data has been touted the currency of modern business, but the sheer volume already is a key challenge for most businesses. And things will not get better if you bear in mind that 90% of the world’s data was created during the past two years. Thus, we are only at the beginning of a flood of data that will be hard to handle. At the same time, much of this data is unstructured and/or difficult to verify. The MIT Sloane Management Review writes that “Data has become a key input for driving growth, enabling businesses to differentiate themselves and maintain a competitive edge”. Data is therefore only valuable if it is both structured and accurate, especially in scenarios described above and Blockchain could be the solution.
The Trust Foundation of Digital Identity
Trust is the foundation of any transaction: is your counterpart who they claim to be? Is the information provided accurate and up to date? Even on a small scale these aspects can be difficult to manage, but in a complex world with several layers to every transaction, the probability of weaknesses in the chain of information increases constantly.
Blockchain on the other hand takes trust out of the equation as it data is time stamped with each transaction and block added to the chain to create a record that cannot be tampered with and is available in real-time. At the same time, Blockchain technology addresses another key issue of our time: the concern about privacy and data protection. Cryptography provides protection where traditional systems are vulnerable to attacks and identity theft.
Imagining (actually it doesn’t require much imagination as a number of financial institutions are actually working on this and something that was already discussed here a while ago) a KYC data base that consists of the combined customer records of several banks, each participating organisation would benefit from the onboarding done by the others and could save itself a lot of time and work by simply requesting an anonymous and encrypted confirmation with regard the required client and counterparty information. Taking this a step even further, the regulator itself could create such a service and provide the service of confirming the necessary KYC check based on its records, verification would not only be faster and cheaper, it could also be easily aligned with any regulatory change directly at the basis. In either case, the benefits would be obvious.