Digital ID and the blockchain

James Riley
Editorial Director

It may not happen overnight, but Australia’s efforts to develop a universal digital identity to streamline and eliminate costs involved in hundreds, if not thousands, of transactions between individuals and large organisations could be swept up in the growing excitement about blockchain applications.

That’s the view of Australia’s own home-grown blockchain expert consultant on the technology, Loretta Joseph. And those tempted to dismiss her ideas as hyperbole should tread cautiously.

Ms Joseph has a long history in securities settlements that has taken her from the futures trading room floor, to advising the Sydney Stock Exchange on its clearing house functions and, most recently, becoming the most senior private blockchain consultant to the OECD’s Directorate for Financial and Enterprise Affairs (DFEA).

Loretta Joseph: Industry can help government use technology more efficiently

Ms Joseph argues that all the talent and resources required for the federal government to incorporate blockchain technology into its digital identity plans (and myriad other transactions requiring data verification) are already in place here.

However, she says that the government needs the political will to start a conversation with blockchain innovators and entertain the possibility of public-private partnerships.

We need to be looking at how we use technology more efficiently. There are a lot of blockchain companies in Australia that are looking at digital ID. We’ve got some really good companies in Australia and they should be working with the government more closely.

“We just need to talk more between government and private industry and our great entrepreneurs in Australia because we’ve got some really good blockchain companies and digital ID is a really interesting case. We can all have self-sovereign ID and we can all be in control of our data to settle all these privacy issues and the digital ID is a great place to start,” Ms Joseph says.

The self-sovereign ID to which Ms Joseph refers is a notion which is gathering more currency as more economies around the world come to terms with the idea that the internet is tearing away at their geographical borders’ ability to anchor commercial activity to their regulatory environments.

For instance, in the extreme case, since 2014 Estonia has been offering e-Residency to that allows non-citizens to use its governments credentials to create an electronic ID to register companies, open bank accounts, transfer funds, buy and sell real estate, and more generally have a valid token to conduct international digital commercial life (which, theoretically, complies with post-911 anti-money laundering and counter terrorism financing rules).

The idea is to accelerate Estonia’s services economy and its aiming to have 10 million e-Residents by 2025, the implications of which could be enormous.

Catching the eye of legal observers in particular is Estonia’s decision to work with Bitnation, a blockchain implementation for identity, reputation and dispute to support its e-Residency mission.

As a recent article in The International Journal of Technology Law and Practice points out, aside from supporting Estonia’s E-IDs in a decentralised distributed ledger, Bitnation aims to be a sovereign virtual jurisdiction of its own recognising everything from insurance certificates to marriage (whether those unions would legally recognised in terrestrial jurisdictions is another matter).

Assuming that the technical acrobatics to Australia’s digital ID ambitions can be achieved via the blockchain requires a leap of faith and the motives behind it might be different to Estonia’s but the idea is the same — to decentralise identity verification away from traditional records in favour of a “trustless” network of multiple stakeholders maintaining an immutable record that is impossible to hack.

It’s those qualities that former Australian Securities and Investment Commission chairman Greg Medcraft and vocal blockchain champion has been keen to highlight in his new role as Director of OECD’s DFEA.

In a recent podcast promoting the directorate’s upcoming Blockchain Policy Forum next month, Mr Medcraft did his best to demystify the blockchain, explaining that anything that can be “tokenised” in a digital form can be offered its protection.

“I think that what’s really interesting about the evolution of blockchain is tokenisation. It means that we can take an object in the real world and create a digital token representing an asset on the blockchain that can be transacted and tracked digitally,” Mr Medcraft said.

Some have argued that the process of tokenisation — affixing a digital representation of real objects to digital tokens such as gold or diamonds or other assets — breaks the essential security proposed by Bitcoin implementation architect, the pseudonymous Nakamoto Satoshi, in his or her original paper.

The reason they argue, is that that the digital Bitcoin store of value is intrinsically “on” the Bitcoin blockchain by virtue of being little more than a string of characters.

If a physical object is incorrectly attributed to a digital token denoting ownership by malfeasance or error, then it’s “garbage in, garbage out” and they argue that simple spreadsheets are more useful than hundreds of computing nodes crunching away at sophisticated cryptographic problems.

However, Mr Medcraft believes that the blockchain still has value. For instance, he reserves praise for initiatives that link GPS coordinates to land titles for transaction on blockchains and similar unique digital identifiers are possible with other asset types such as gemstones.

As powerful as the applications may be, Ms Joseph says that the greatest advances in advance technological state of modern economies may actually be the barrier to their take-up of blockchain.

Ms Joseph, who works with the government of both Bermuda and Mauritius, says that bringing basic secure payment services to unbanked populations is one of the main reasons that blockchain is attracting attention in the developing world.

Vulnerable, transient worker populations often have to shoulder hefty fees to transfer funds across borders, but a Bitcoin-like peer-to-peer blockchain implementation could remove or minimise them.

“Two billion people at the bottom end of the world don’t have access to banks. Most of them don’t have an ID but, guess what? They have a (mobile) phone,” Ms Joseph says.

However, she says, in economies like Australia’s where banking infrastructure, the financial services market and fiduciary regulation is highly mature, it is much more difficult to develop a business case to convince governments to experiment with new approaches.

“It’s very easy to be innovative and quick when you don’t have legacy systems. That’s why we’re seeing this technology in the emerging world because the governments are much more willing to take on pilot (projects) and to write the laws and regulations to come and build this stuff,” she says.

Loretta Joseph is Director of International Regulatory Advisory at Paradym Global Ltd.

There are a limited number of seats available for Civic Nation 2018.


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