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The Blockchain Cart Before the Identity Horse

The idea of creating something with a business model in mind has fallen out of favor in recent years. Instead, it’s far better to build something and then figure out how to monetize it. Facebook, now highly profitable, lost $59 million in 2011 before it figured out exactly how it could make money through advertising. Twitter only just made its first profit in its 12 years. It’s not just social media — one app, Springpad, had 5 million consumers using its Evernote-like features. But after building its user base, it failed to create a business model and folded.

The move fast and break things attitude means building things and figuring out how they make money later. Recently, the excitement over the possibilities of blockchain has combined with this to create some promising and crazy ideas – blockchain for copyright, blockchain for music distribution, blockchain smartphones, and blockchain for identity. This last idea has many potential benefits for consumers, but a lack of a solid business model to accompany these innovations often means the idea is dead on arrival.

The case for blockchain

In recent years, blockchain has increasingly become a hype bandwagon — a solution in search of problems to fix. But with identity, there are advantages to blockchain that may be genuinely useful and not just gimmicks.

By decentralizing identity, the possibility of people controlling their own identity credentials — rather than having them controlled by a central authority — becomes reality. The so-called self-sovereign identity means that consumers have control over what they share. For example, content that is age-gated can be accessed simply by sharing a date of birth, while more complete information can be shared with those that need it, such as financial service providers. Consumers could also have access to a better overview of who has their data and revoke access where necessary.

A blockchain also provides a better audit trail. Identity theft is an ever-present issue that blockchain can bring into focus; consumers can see when their identity has been misused and get a complete record of the identity-based transactions that have taken place. This record, an inherent feature of blockchain, is impossible to alter, so any wrongdoing will leave traces that can be followed.

As it stands, every company that holds our data is in the business of identity management — they need to protect what we’ve handed to them. When they get it wrong, our details are exposed in a data breach, the rate of which seems to be ever-increasing. HaveIBeenPwned.com, a site that collects data from breaches to help identify who might be at risk, has over five billion accounts in its database. Blockchain could mean that data breaches would no longer reveal as much sensitive information.

The business case — or lack thereof — for blockchain

Unfortunately, the case for blockchain identity runs into problems when the business case is examined. Why? In this case, the consumer benefits, as well as those organizations making use of the service — but the actual provider of the service does not.

A public distributed ledger for identity would be accessible to anyone who needed it but essentially owned by no one. The system would need buy-ins from both consumers and businesses to get traction and reach an acceptance tipping point. It would take time and money to promote the service, far more than what would be required to create and run it.

Similarly, the idea of self-sovereign identity, made possible by the blockchain, runs into immediate issues. We’ve all had to succumb to the forgot your password? link no matter how hard we tried to commit our security credentials to memory. In a distributed system, what is the central authority that will help consumers who have forgotten the details they need? Who can amend any mistakes that have been made? Again, this would require an investment of time and money that few organizations would be willing to spend without a clear idea of where revenue is being generated.

While the social media platforms that took years to make a profit had a build it first, then monetize it attitude, there was always a plan to make money. Facebook and Google make billions of dollars from advertising because they invested so much in creating a massive user base, demonstrating that monetization was always on the agenda. The difference with blockchain is that there isn’t often a feasible monetization plan — not even a vague one.

But blockchain for identity has an even bigger problem than just revenue generation: is it actually better than current systems? There are already successful ways of managing identity, so why switch focus to another technology just because it’s new and shiny?

When all you have is a hammer, everything looks like a nail. For the moment, blockchain’s advantages for identity do not outweigh the problems. Until businesses figure out how to monetize blockchain and where it can best be adopted in their businesses, we’re unlikely to see this technology revolutionize identity management.

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