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The Future of Digital Identity
Converging Trends and Promising Paths
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For years, insufficient consumer data protection and invasions of digital privacy have been a simmering source of concern, and it appears that things may finally be boiling over.
Although change can be expected in fits and starts, three trends are converging that heighten both the need and attainability of a new framework for managing digital identities. Demand from regulators and the public, the rapid rise of AI, and the adoption of decentralized technologies each contribute toward a growing motivation to establish a better model for digital identities that can empower and protect users.
Trend 1: Demands for Data Privacy From Users and Regulators
While concerns about data privacy are far from new, the issue is becoming increasingly salient. Surveys have found that over 85% of consumers say that data privacy is a growing issue for them, and more than 80% see data protection policies as an indication of how a company treats its customers.
Regulators have also taken notice and pushed forward more stringent data protection laws. Five U.S. states — California, Colorado, Connecticut, Virginia, and Utah — have recently passed new consumer data legislation. These laws hew closer to Europe’s General Data Protection Regulation (GDPR) standards that give consumers more control over how their data is collected, stored, updated, and used.
New laws and user sentiment reflect palpable dissatisfaction with existing practices for protecting identity and privacy online. While the pace of change in regulations and customer behavior is uneven, a clear trend is developing toward a more user-centric and rights-based approach to data privacy.
Trend 2: The Surge in AI Development
The extraordinary growth of AI creates a host of important challenges for the future of digital identity and privacy.
At the most basic level, AI raises the stakes around how data is obtained and used. AI models like ChatGPT rely on enormous amounts of training data, which fosters concerns about how that data is collected, stored, and deployed. The scale of AI and its generative capacity puts renewed emphasis on who owns and controls information shared online. Criticism from artists about AI models producing content based on their original works is only the tip of the iceberg.
Given its ability to create realistic video, audio, text, and images, AI will also dramatically increase the problem of fabricated media. As deep fakes proliferate and appear increasingly legitimate, it will become harder than ever to verify what data and media can actually be trusted.
Perhaps even more impactful, AI agents and applications will be relied upon to carry out a growing number of everyday tasks. AI agents will be empowered with a degree of autonomy to carry out diverse functions like booking travel, generating sales leads, or handling customer service communications.
In this environment, being able to prove identity will take on enormous importance. Manual steps to confirm identity, such as know your customer (KYC) requirements for financial transactions, are likely to be replaced or updated with processes that AIs can complete. With AIs taking on expanded roles as economic actors — making and receiving payments — it will be essential for both humans and AIs to have verifiable credentials in order to know who they are interacting with.
Trend 3: Decentralized Technologies Becoming a Reality
The development and adoption of novel technologies focused on decentralization have the potential to upend existing practices around user data, privacy, and digital identity. Self-sovereign identity (SSI) and blockchain are independent technologies, but they can complement each other to usher in a future of user-driven, secure, and verifiable identity.
SSI is premised on the idea that users should have control over their data and digital identities. In an SSI framework, users own private digital wallets. Issuers provide verified credentials that are kept in those SSI wallets. When needed, users can decide when and what of their data to share in order to provide their identity. At each step of the process, peer-to-peer transactions use public and private keys to cryptographically “sign” and verify credentials while keeping data decentralized and secure.
Key elements and benefits of SSI include:
Decentralization: Storing data in a user’s own SSI wallet keeps it out of centralized servers owned by third-parties that are subject to hacks.
Ownership: A user’s identifying information is in their own hands, and third parties cannot modify user data or deny access to it.
Consent-driven: Users have the power to make decisions about sharing data, including what to provide, with whom, and under what circumstances.
Minimized disclosure: When a user decides to share information, they can generate unique identifiers that disclose data on a “need-to-know” basis to confirm their credential. In a simple example, a user could prove that they are over 21 by opting to only share information about their age. Compared to a physical ID that often includes an address, height, weight, and eye color, this digital credential would significantly reduce the unnecessary disclosure of identifying information.
Portability: Instead of having to create separate accounts and logins to prove identity for different domains and verifiers, users can carry their credentials with them in the same SSI wallet that works whenever they have to prove their identity.
Reputation: Credentials can verify not just identity but also reputation. Examples include reference letters, academic and work history, or proof of on-time bill payments, each of which would be cryptographically signed by the issuer to prove their authenticity. Instead of the “background check” model in which third parties gather and store information on people, SSI would allow users to own and demonstrate their own verifiable records.
Self-sovereign identity resolves many existing data privacy problems and also offers potential solutions to future challenges driven by AI. With cryptographic signing of diverse types of decentralized credentials, SSI can verify the authenticity of both identity and content. As a result, it can facilitate the activity of trusted AI agents while also providing users a mechanism for detecting whether messages, videos, and other media are valid or fabricated.
SSI can be built on different types of technological rails, but blockchains are a compelling framework to make SSI scalable, interoperable across platforms, and capable of incorporating varied types of credentials without the need for custom engineering.
Blockchains are well-suited to facilitate SSI through decentralized digital wallets that are cryptographically secured yet verifiable according to an immutable ledger. As a result, private data can remain safely in a user’s wallet, but credentials can be proven to be authentic and free of tampering.
While the future of digital identity and privacy is uncertain, converging trends demonstrate the need and opportunity for change. A web3-powered solution can utilize blockchains and self-sovereign identity together to establish a technological framework that protects sensitive information, empowers users, and enables dependable verification processes that will be essential in the era of AI.
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