by Ralph Tkatchuk

The economics of digital identities

Mar 13, 2018
Identity Management SolutionsTechnology Industry

By creating models that disintermediate and give users more control, blockchain-based self-sovereign IDs and associated data marketplaces redefine the balance of power encompassing digital identities.

facial recognition - biometric security identification - binary face
Credit: Thinkstock

The idea of proof of identity is not a new concept. From the wax seals and sigils used in medieval and Roman times to the paper identification used until the advent of more effective technology, society has long placed a premium on the importance of proving who you are. However, the rapid evolution of the digital world, with its intense need for identification creating tension with companies’ need to collect as much information about their users as possible, has caused a shift in how identities are viewed, and measured.

This rabid rush to monetize leads to an important question—who owns the rights to profit off one’s identity? Is it the corporations who provide a service in exchange for the privilege, or is it users themselves—who rarely see a penny off these efforts—that should decide how their identity is used and sold?

Blockchain has reawakened the idea of self-sovereign identity, a single system that gives users complete control over all aspects of their identity, to do with as they will. In this new model, companies could no longer simply take users’ identifying information—in any capacity—without directly compensating users themselves. So far, this hasn’t been a silver bullet, but it does posit a clear break with the current paradigm in favor of a system that supports individuals’ rights over corporate profits.

Self-sovereign ID changes the monetization math

Whether a password to unlock email accounts or a biometric scan to access phones or other services on the web, the need to validate a user’s identity is a major part of life. This is one part of a digital identity—the ability to access services by simply proving users are who they claim to be. This portion simply requires a private key—such as a password—and a public key which can decrypt it. The second part of digital identity, however, is where questions of ownership arise.

The answer to the question is complex, as it could have massive financial implications. The value attributed to digital identities is estimated to expand by 22% yearly, with economic benefits of nearly €330 billion for Europe alone by 2020, and nearly twice as much value for consumers.  This enormous value is driving technological innovation as new companies look to disrupt the status quo in favor of a model that prioritizes privacy and control over corporate monetization.

In the existing model, users cede the rights to their personal and identifying information by using or taking part in a company’s online services. Simply logging in and entering your information gives these companies the right to use that information how they see fit. Google and Facebook, for example, have leveraged their massive data stores into billions of dollars in ad revenues—the companies currently control a quarter of all online ad spending. Meanwhile, users have little choice or say in the matter; they either accept the terms, or they forfeit access.

The model is hopelessly one-sided and has accordingly led to innovation that directly targets the problem. By employing blockchain, several companies have started exploring self-sovereign ID solutions that simplify the access part of the equation all whilst creating a more equitable and democratic model for monetizing identities.

Reclaiming users’ sovereignty

Using decentralized applications based on blockchains, companies have established digital folders that let users control all aspects of their identity—documents, certificates, passwords, and more—in a unique location that is accessible and easy to use. Moreover, they mean that the only person in control of how that data is used, shared, and sold, is the user themselves.

Startups like Sovrin, which has developed a protocol for fully user-owned self-sovereign ID, aim to create a more open and accessible digital world. The company’s specific goal is to improve trust levels in online interactions in both public and private spheres. Others offer a more seamless online experience by using self-sovereign ID as an access point to financial services, exchanges, and other verification purposes. Groups like Civic, meanwhile, are focused on helping users protect their online identity to avoid crimes like fraud and identity theft.

For companies like Facebook and Google—the two largest revenue earners in online advertising—data collection and monetization are big business. Facebook alone makes an estimated $20 dollars per user on average simply by monetizing the data they collect from them. The problem is that none of that money ever winds its way to users’ pockets, nor do users have a say in how their information is sold or to whom. Self-sovereign ID severely limits these companies’ abilities to do so by giving users full access control over their data. Users are interested in gaining some benefit from their data even if it’s not monetary.

By employing these self-sovereign models, companies on blockchain platforms have started creating ways to return control to users. Wibson, for example, hosts a fully decentralized marketplace where users can sell private information that is validated without having to divulge their full identity. Users can interact directly with sellers, and monetize the parts of their data—location, demographics, interests—that don’t compromise their identity.

The platform, and others like it, also promise greater transparency, so users know exactly what their information will be used for, giving them better autonomy and choice. This way, advertisers and users can eliminate the intermediaries like Facebook which limit how profitable these dynamics can be.

“In today’s economy, data equals money. Unfortunately, that exchange hasn’t made its way into consumer wallets – until now,” said founder and CEO Mat Travizano.

A new dynamic for digital identity

The existing models for user identity have already prominently displayed how problematic they are from a user perspective. Corporations still entirely retain the right to use, sell, or hold users’ data however they like, often with little recourse. While these companies’ motives are hardly nefarious considering they are likely mostly profit-driven, they do pose problematic questions for user privacy and the right to self-determination. Blockchain’s decentralized model offers a more equitable path, granting users full control over their identity before enabling them to monetize this valuable trove of information how they see fit.

It is still not clear how or if this mode of identity will take off, but it does pose one of the most feasible threats to the existing paradigm with the passage of time. By creating models that disintermediate and give users more control, blockchain-based self-sovereign IDs and associated data marketplaces redefine the balance of power encompassing digital identities.