How blockchain-backed ID can lift up the lives of the unbanked masses: Opinion

In today's society, a large number of people regularly make use of contactless payments, conveniently access public transportation systems, and instantly send money to their loved ones through mobile applications. Amidst all this, it's often forgotten that there exist countless households globally that do not have any access to banking services.

In a household without banking services, none of the members have an operational bank account. Although there has been a decrease in the number of unbanked individuals in recent times, the latest Global Findex report from the World Bank reveals that just 76% of the global population has access to financial accounts. In other words, the remaining 24%, which is equivalent to over one billion people, forms a significant minority.

The statistics become more striking when you delve deeper into the specifics. As an illustration, in Nigeria, a mere 45% of grown-ups possessed a bank account during the survey period. Bangladesh and Colombia had account ownership rates of 53% and 60% respectively. In the United States, the unbanked population stands at only 4.5%—however, this still equates to almost 6 million households across America.

There are numerous factors that can contribute to an adult being without a bank account, and these factors have significant implications. Individuals who are unbanked can face barriers when it comes to job prospects and accessing necessary services. The unbanked population may include individuals living in poverty or residing in remote areas with limited financial institution accessibility. Another key reason for being unbanked is the difficulty some people encounter in proving their identity.

More and more, blockchain technology is offering fresh alternatives for confirming one's identity.

Let's explore how blockchain technology can assist in connecting with individuals who have no access to traditional banking services.

Managing digital identities has become a lucrative industry. Accenture and Microsoft have been collaborating on the ID2020 project since 2016, with a specific emphasis on advancing digital identity technologies.

The campaign focuses on the advantages that would be provided to the approximately one billion individuals who do not possess the capacity to demonstrate their identity through commonly accepted methods. Furthermore, it aims to tackle the deficiencies and difficulties associated with conventional means of verifying identity. Additionally, IBM has developed its own digital certification system based on blockchain technology.

Numerous blockchain startups and fintech organizations are currently devoting their attention to the management of digital identities. One such project that has gained significant media attention in recent times is Worldcoin, a cryptocurrency endeavor centered around the utilization of iris-scanning technology. As of now, Worldcoin has successfully gathered retina scans from a user base exceeding two million individuals.

Here are a few advantages that digital ID management platforms aim to provide:

Historically, managing one's identity meant individuals relying on centralized third parties like governments and financial institutions, giving them authority (and sometimes ownership) over their identity information.

On the other hand, blockchain-driven systems facilitate the idea of self-governing identity (SSI). This can be used in different platforms and establishments, giving the individual complete authority over their personal information. SSI operates on the idea of providing only necessary information. For instance, if someone needs to verify their birth date, they don't have to share their entire passport which may reveal additional personal information.

By utilizing a system based on blockchain technology, individuals have the ability to maintain complete authority over the sharing of their own data. This eradicates the need for dependence on external entities when altering or withdrawing consent regarding such data.

Blockchain ID verification systems commonly employ digital signatures and pairs of public and private keys. Consequently, identification can be promptly authenticated, eliminating the necessity for physical records or third-party authentication mechanisms.

In blockchain systems, information is distributed among nodes instead of being stored on centralized servers that are susceptible to cyber attacks, periods of inactivity, and technical malfunctions.

Blockchain systems are built to withstand theft and fraudulent activities. Information stored on blockchains is exceptionally secure and unalterable, even in the event of a single server being compromised.

Numerous blockchain advancements are created with the objective of reducing expenses. For instance, Ripple (renowned for its XRP digital currency) specifically challenges the well-established SWIFT network, providing secure and expedited international transactions.

When it comes to managing identity, there is a lot of repetition involved in the processes. This repetition has an impact on the finances of both individuals and the organizations that cater to them. It often involves going through several similar procedures to verify one's identity and providing the same identification documents to multiple external parties.

So how does this actually appear in real life, and how will it benefit those without access to banking services?

Many companies have embraced the idea of having blockchain-powered digital identities that can be seamlessly used across various platforms and borders. In essence, this means that individuals can undergo the necessary compliance checks only once, and then utilize their digital identity to easily access multiple services and open accounts.

Although numerous companies are making progress towards achieving that objective, there are still hurdles that need to be surmounted.

The management of digital identities on the blockchain encounters various obstacles, particularly the fragmentation of the market and the challenges associated with adhering to regulations in different countries.

An important objective for affiliated enterprises is grasping the advantages of digital identity control, while simultaneously handling the hardships of adherence. Matters regarding "know your customer" (KYC), anti-money laundering (AML), and similar regulations are intricate and frequently vary by country — and to add to the difficulty, regulatory bodies often change their requirements unexpectedly.

The untamed and chaotic nature of the blockchain market is also difficult to overlook. Numerous companies that advertise themselves as offering blockchain identity services on the internet have already shut down. Regrettably, digital identity management is a type of blockchain industry that is not shielded from fraudulent activities and sudden deceitful actions.

In the future, it is highly probable that a few companies will establish themselves as frontrunners in the market. Fortunately, the decentralized aspect of blockchain ensures that they should not transform into artificial centralized intermediaries – which would completely go against the purpose!

Various countries are adopting different methods to promote digital identity management. In the United Kingdom, for instance, the government permits providers to acquire certification in order to conduct digital identity verifications that serve multiple objectives.

There are already existing blockchain solutions that companies can incorporate into their anti-money laundering (AML) arsenal, but they mainly target cryptocurrency businesses. However, it is expected that these solutions will eventually gain more popularity and be utilized in various other industries.

It is undeniable that mastering this intricate technology is not an easy task. Nevertheless, contemporary financial technology companies have long been adopting a transnational strategy, seeking innovative ways to connect with customers who may be neglected by conventional establishments.

Although the advancements may take time, the utilization of digital identity management has the potential to improve financial inclusion in diverse situations. This allows individuals without access to traditional banking services to explore alternative avenues, such as micro-loans and online employment options. Additionally, incorporating blockchain technology in this process offers advantages in terms of privacy, swiftness, and safeguarding information.

It is still uncertain how things will unfold. However, since numerous companies, both well-established like IBM and up-and-coming startups, are showing interest in this field, we can expect a continuous stream of thrilling advancements.