Is Identity a Problem that Blockchain Can Fix?
Identity, Unbanked - October 1, 2020
There are so many forms of identity in the modern world – cultural identity, social identity. But the most important is financial identity.
To understand its importance, think of it this way. If a bank doesn’t know who to make out a check to, where does it go? If a government doesn’t know who voted for them, are they in power?
In the developed world, the government has a unique ID for every citizen. This unique ID is given to the citizen at birth and stays with after they retire. It is used when applying to a school, and even when receiving a paycheck at your first job. It follows you like your shadow, but stay with you even in the dark.
There are tremendous functions of identity in the developed world, here are three of the most important:
- Taxes: Each citizen has to pay a certain amount of tax based on how much they ‘take out of the system,’ this ‘certain amount’ is determined and eventually tied to their identity.
- Credit: In order to get a loan, an individual has to give their identity details, this has to be verified with previous instances of borrowing, repayment outcome, references, history and more.
- Banking: A banking account allows the governance system to verify that you’ve paid your tax, and allow the lender to give you credit. Several checks and balances are integrated in this stage, along know your customer (KYC), anti-money laundering (AML) and countering terror financing (CTF) policies.
Identity ties the citizen to the government and every financial system in the economy. From the bank account, to the credit bureaus, to the insurance agent, to any party that is participating in the economy and with the citizen has their identity on their books.
Beyond the financial world, identity also plays a part in commuting, since it is tied to your driver’s license, in travel, as it is tied to your passport, in voting, because it is tied to your voter ID.
What does all this mean? Besides the fact that you really shouldn’t lose your ID or share it, it emphasizes the importance of data. More importantly, your private data. Data concerning your financial spending, your education and career history, your health details and more. Each pariticpating organization you’ve given your ID to, has a little bit of your data. And all this data is compiled collectively through the government.
Now, this may not be a bad thing completely, but when you can’t trust the government with something like your vote, trusting them with an identity is impossible. Like with any centralized system, there is a possibility of exploitation, by an increase in the fees and friction to the powerless.
Identity, being central to any financial or governance model, is one of the main focus areas of the blockchain and decentralized finance world.
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