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Hot off the press this week in New Zealand is news that Spark, one of the country’s three mobile-phone operators, has joined a global consortium called Sovrin that aims to create a secure online identity system using blockchain technology.
An identity utility
The Sovrin Network is proposed as “a public service utility enabling self-sovereign identity on the internet.” It is governed by the Sovrin Foundation, a nonprofit established to administer the trust framework under which the network operates. Consistent with the principles of decentralization and collaboration among peers that characterize blockchain, the code base for the venture is open source, and membership of the venture is open to anyone (or any firm) that is prepared to abide by the rules of the “club.”
Sovrin proposes to dismantle the current centralized systems via which digital identities are created, owned, and issued (for example, by governments issuing passports and drivers’ licenses, or banks issuing credit cards) and therefore the vast repositories of personal data that are vulnerable to abuse and misuse. Instead, identities will be owned by the individuals creating them.
This is proposed to have both security and trust benefits. First, the Sovrin blockchain is used for identity verification and no other purpose, so it does not maintain repositories of personal data. Second, as it is based on open protocols and standards and runs on open source software, its promoters claim that it is owned by no one. This is supported by its nonprofit governance structure (the key to which is the nondistribution constraint; no one owns a claim to any profits made from its operation). It is argued that these arrangements most closely resemble those underpinning the internet and, more specifically, the Domain Name System, which provides the information mapping domain names to internet addresses.
“Stewards” — the source of trust
At the core of the Sovrin network are “stewards” who, as the peers in the network, are trusted by each other and by those needing to ascertain the credentials of an individual. Individuals interacting (commercially or otherwise) with stewards can create an identity for each relationship. The unique digital identifier for each relationship can then be provided to another party who can verify the existence of the relationship over the Sovrin system and use the verification to inform their own transaction.
As with most systems, the effectiveness of the Sovrin — or any other — blockchain-based identity system will be contingent upon having a sufficient number of users. These include the individuals whose identities are in question, issuers, and transactors needing to verify individuals’ identities. It will also need to be financially sustainable. If the system has no owners, then it has no one providing financial backing. Either fees will have to be charged or some other means devised to recover operating costs. However, using existing payment systems necessitates engaging with exactly the same centralized systems that Sovrin aims to eliminate.
Hence, Sovrin proposes a token system (effectively a currency) that reward the various parties. The token is fundamental to turning Sovrin into a digital marketplace for trust.
As trust is valuable, anything that can become a measure of trust can be exchanged for a token of value. Every time an identity owner proves his or her identity using an instrument issued by a trusted issuer, it lowers the risk to the counterparty (the verifier) in transacting with them. Benefits accrue to both the individual and the verifier; hence, both will be willing to pay the issuer. In some cases, the verifier may also be willing to pay the identity owner directly (e.g., by way of a discount or tokens if identity can be verified). Any source of trust from a government to a family has an incentive to realize that value (and earn tokens) by helping build trust with others. Competition between issuers based on credential quality and cost will emerge. And as is the way with network effects in two-sided markets, that competition may include the use of tokens to subsidize the “side” of the market that will best facilitate rapid issuer growth.
Why would a mobile operator join?
Why, then, would a mobile operator like Spark join Sovrin? The answer appears to lie in a white paper produced by the organization: “For example, your mobile carrier could help you prove your location at any point in time — and be paid for it.” Notably, Spark appears (so far) to be the only telecommunications provider among Sovrin’s forty-odd stewards. (The rest are predominantly banks, other financial institutions, and software laboratories, but the list also includes a university and a research institute.)
While smartphones have GPS capabilities, and the information can be shared with others, verifiers requiring exact location information at a given point in time are unlikely to trust your phone as the issuer of the information, as GPS information is easy to fake. However, your mobile carrier knows your phone’s location precisely, as it is required to deliver the service. Hypothetically, you could ask your mobile carrier to issue a verifiable claim as to your location that could be verified by your bank when it seeks to know whether you are actually in your office requesting a high-value transaction. As Sovrin says, “You get convenience, the verifier gets assurance, the carrier gets new revenue — everybody wins.”
Similar business cases are proposed for universities ensuring verifiable degrees for their alumni and for verifiable claims to solve the costly problem of changing address records.
Selling identity or selling data?
At first glance, it may seem that the Sovrin business case is predicated on revenues from selling data. However, as a decentralized system, and with the revenues accruing to the individual members providing services rather than the system owners, it occupies a different space than centralized systems selling data for advertising. It also treads new ground by enabling markets to develop for the provision and verification of identity data.
It is too soon to predict how this might evolve. However, the Sovrin example illustrates that real applications are being developed using blockchain technologies, and they are surely going to challenge our thinking about how value is created and traded in a digital economy.
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