Proving one’s identity has long been an important part of establishing and maintaining access to essential government services and economic opportunities.
In this article, we’ll discuss the various reasons why blockchain is needed as a solution for both rich and poor citizens from around the world. We’ll also look at how the creation of a digital, blockchain-based identity benefits citizens and the overall global economy.
Why do the rich need a blockchain-based digital identity?
When it comes to the wealthy or even the middle-class in developed nations, a blockchain-based identity system can help solve many major obstacles to wealth creation. Regulations around anti-money laundering (AML) and know your customer (KYC) all increase regulatory and legal costs.
There are a number of examples that display how these costs and the time spent conducting AML/KYC checks have created obstacles to potential economic growth. According to a survey conducted by the International Chamber of Commerce in 2016, 90.3% of businesses said that AML/KYC checks marked a significant obstacle to international trade finance. This is significant, especially considering that this category tops the list. Additionally, it’s important to note that respondents rated other factors like high transaction costs or low fee income (60.2%), and insufficient company collateral (61.8%) much lower.
What these statistics show is that wealthy entrepreneurs and large enterprises have less opportunities for growth, not because of financial concerns, but simply due to the lengthy process it takes to get approval from regulators.
Why are regulations so strict? First, there traditionally hasn’t been a good solution for cost-effective checks. Second, banks are becoming increasingly weary of possibly enabling money laundering and other criminal activities. This is due to the reality that the penalties for money-laundering are quite significant. There are a number of cases in which banks have had to pay large sums of money (hundreds of millions and even billions of dollars) many years later.
Using a blockchain-based identity management system can help solve some of these issues through an immutable system for AML and KYC checks. Not only does a blockchain-based identity for businesses and wealthy individuals offer this service at significantly lower costs, but it can also allow users to complete the verification process much quicker.
In turn, this can help ensure that companies conducting international trade, for example, are able to foster economic growth all while ensuring regulatory compliance.
Developing nations: creating a better infrastructure for the market economy
When compared to developed nations and wealthy individuals, poor people and developing nations have much different issues to deal with on a daily basis. Still, many of these problems can also be solved with a similar, blockchain-based digital identity system.
It is estimated that 1.1 billion people globally lack official identification altogether. Unfortunately, in a lot of cases, this makes it nearly impossible to access basic services. Think about something like property ownership. In developed nations, property ownership is typically easy for anyone to rightfully claim. For people in developing nations, however, lacking identity means the process of proving property ownership is a tall task.
Without proper identity or the ability to verify property ownership, people in developing nations lose out on one of the fundamental parts of economic empowerment. Without this basic ability/right, how can it be possible for market economies to develop? How can those without property ownership start a business for example?
By creating a blockchain-based digital identity system, developing nations will be able to catch up to or even have the potential to surpass developed nations in this one key area. Think of how technologies like mobile phones or renewable energy projects have improved the future of developing nations over the past decade. Places that were once unconnected now have an increasing number of possible opportunities for better sustainable development.
These improvements along with blockchain-based identities can certainly allow developing nations to establish better technology-driven infrastructure, and give citizens more opportunities to play a larger role in the global economy. Individuals and governments will also be able to utilise technology to prevent major issues like lack of free movement, as well crimes like corruption and human trafficking.
Greater security through blockchain
For the most part, identity systems of today are disorganised and easily manipulable.
For example, governments have control over centralised databases where it is possible to change the citizenship information without warning for a particular citizen or group of citizens.
This gives governments absolute authority over identity systems, which could be used in a harmful manner. Moreover, centralised databases do make it possible for hackers to steal sensitive data.
In contrast, decentralised databases utilised in blockchain technologies ensure that citizens are able to protect their identities. Essentially, blockchain offers a more advanced data management solution that can meet the security demands of the public sector. For end users (i.e. citizens with digital identities), this could mean far fewer hacks and the elimination of unauthorised record manipulation.
Regardless if one is considered rich, poor, or somewhere in between, blockchain-based identities are beneficial due to the fact that these systems drastically improve the future of identity protection, and create more economic opportunities for all.
Interested in finding out how a decentralised platform can help users and organisations manage their digital identity? Download the whitepaper to discover how the SingleSource platform works.