OPINION: Identity and Crypto

31/01/2020

Photo by Alex Iby on Unsplash

By Paul Murphy of Credmark

Historically, Liberal (with a capital L) societies have opposed the use of government-issued IDs. Less-liberal societies haven’t minded so much. In the UK –unlike Europe– we always opposed them; in the US too. The rest of us have mostly been okay with governments assigning an immutable number to every citizen. I don’t understand why.

Government ID

Even governments in Liberal societies tend to veer away from this tradition over time. The UK and US both created de facto IDs when they introduced government-sponsored pension schemes. That was a long time ago. And now politicians in both countries are pushing for “better” ID systems. This is becoming the new normal, and citizens accept it at their peril. 

The “ideal” ID is something like Argentina’s National Identity Document (DNI). An ID card issued at birth, with every citizen given a unique number. The DNI is tied to biometric and residential data. It is used to track citizens’ religion, marital status, employment, income, purchases, and even voting habits. It was introduced in 1968 by a decidedly illiberal military dictator.

Is this really what we all want?

Let’s assume that a unique ID is necessary for tracking national pension data. The pension manager, i.e., the government, needs to track contributions in order to properly allocate benefits. That seems okay, but why should that number be used in any other context?

Why, in the US for example, is a Social Security Number required to open a bank account? Why is it required to create an account on a crypto exchange? Will the exchange be collecting pension contributions and dispensing benefits? Of course not. 

This bothers me, as it bothers others who don’t entirely trust that their government will forever be benevolent. We are, in general, a small minority. What astonishes me, however, is that we seem to be a small minority even in the cryptocurrency space. 

Photo by Viktor Forgacs on Unsplash

The “identity problem”

Read any list of crypto benefits and you’ll find the word “permissionless”. Permissionless means that government cannot prevent the ownership or exchange of crypto. Neither requires proof of identity. 

Why then do most discussions about crypto financial services assume that future growth depends on our solving “the identity problem”? 

A very large percentage of the world’s inhabitants have no government-issued ID, and no ID besides a passport is recognised internationally. We have no global ID. This is what we call “the identity problem”.

Many of the very same people who tout the benefits of permissionless crypto tell us that we must know who someone is in order to give that person a loan, for example.

This is nonsense, dangerous nonsense

A few of us are lucky enough to be citizens of countries with relatively benign governments, but most of us aren’t. We don’t need governments or fellow citizens knowing everything we do. 

The existence of crypto isn’t going to change regulatory frameworks overnight. In fact, they’ll almost certainly become more stringent in reaction to the difficulty of tracking crypto assets. 

I don’t blame centralised, regulated crypto businesses from following those regulations. They must. Those businesses are a necessary bridge between today’s financial system and tomorrow’s.

Decentralised crypto financial services, however, are a completely different animal. They are not subject to any country’s regulations. They should not require strong identity. Doing so discriminates against every person who lives in a country without a ubiquitous identification system, either by design or incompetence.

It also discriminates against people who live in countries whose governments are so oppressive that participating in crypto finance is criminal. If “permissionless” is a key benefit of holding and exchanging cryptocurrencies, we must extend this benefit to all crypto financial services.

None of this means that we don’t need mechanisms to reliably identify that one party in a transaction is the same party in another transaction, but those mechanisms should not rely on government proofs of identity. 

We are just starting to explore what those mechanisms might be. We have a lot of work to do. That is the real “identity problem”. Arguing that we need government IDs or some sort of global identifier is lazy and orthogonal to one of the primary goals of cryptocurrencies. 

 

Paul Murphy’s software career has primarily focused on financial services and voice. On Wall Street he worked on a broad range of front and back office systems. He then became obsessed with the human voice as interface, building tools and applications that interacted with users over telephones. This obsession culminated in the founding of Clarify, which developed cutting edge speech recognition and language processing software for conversations. With Credmark, Paul is re-entering the finance space because he firmly believes that crypto is the foundation of the next global financial system.

This article does not constitute legal advice.

The opinions expressed in the column above represent the author’s own.

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