Identity really is the new money

close up of hand holding text over black background

Today is International Identity Day supported by the many organisations around the world seeking to address the huge inclusion issues caused by a lack of digital identity. It is tempting to think that this is a mainly developing world issue and that in the developed world the lack of digital identity services is more of an inconvenience than a real problem. Here in the UK, however there are still up to 5m people who struggle to access financial services because they do not have the right documents or data. More on that in our recent report.

Something I’ve been thinking about quite a bit this year is interplay between Digital Identity and Central Bank Digital Currency (CBDC). What’s that got to do with the pressing need to give effective digital identity to those that need it most? Two things really:

  • Firstly, a significant factor in the development of a CDBC will be to ensure it is inclusive. After all one of the main objectives in CDBCs is to provide a digital alternative to cash. The financially excluded rely on cash and so a CDBC may have an important role to play in addressing their needs.
  • Secondly, whilst the need is pressing, making it happen will take time. The UN Sustainable development goal 16.9 calls for the provision of legal identity for all by 2030. Many CDBC initiatives are operating on a similar timeframe.

The beauty of CDBCs is that, in the main, central banks are starting from a blank sheet of paper, which creates the opportunity to design something well from the start. A big problem in digital identity has been trying to retrofit it into a digital world after the fact.

Another interesting thing is that the emerging model for CDBCs has close similarities to the decentralised model for digital identity, which is the direction of travel in that space. Let me explain a little.

This following picture illustrates 2-tier model for CDBC:

Senders and receivers will have wallets that interact with each other. They will hold the identifiers (backed by private keys) that allow the parties to control the use of their CDBC value. The actual system of record will be a ledger provided by (or on behalf of) the central bank. Wallets will use tokens, which are cryptographic representations of the value managed by the ledger, which are bound to the identifiers (and keys) belonging to the parties.

Now look at the standard model for decentralised identity:

Identity information is sent from holders to verifiers. The information is sent in the form of cryptographic credentials (you could think of them as identity “tokens”) that are bound to identifiers which can be checked in a registry. Of course for those credentials to have any value they need to come from a trusted source – an issuer.

So you can see there is a strong correlation between CDBC and decentralised identity systems. The content of the two grey boxes is basically the same.

Furthermore, CDBC systems will have some very particular digital identity and privacy requirements:

  • There will need to be controls in place to prevent AML.
  • The CDBC must not become a mass surveillance system.
  • The system must allow anonymous transactions in some circumstances but not all.
  • Users must have control over how much data is shared (and in some cases if the user is not willing to share data the transaction will not be able to be completed).

These requirements could be met very well through the use of decentralised identity technologies such as those being developed in W3C, which support the presentation of verifiable identity information whilst employing strong privacy controls. There seems to be a strong case for the CDBC community to collaborate with the identity community. We have a foot in both camps and are working hard to ensure that the years of work put into decentralised identity is leveraged effectively in CDBCs.

It really is the case that Identity is the New Money.

CBDCs – wallets, liability and acceptance

illuminated cityscape against blue sky at night

CBDCs are everywhere – and nowhere. Everyone is discussing them, but almost no one is actually deploying them. Sure, this is in part due to the early stage thinking that is going into working out what is actually required but it’s also due to the tricky business of actually working out how they would be implemented. Developing a retail payment solution is a lot harder than creating a Central Bank backed payment instrument.

Identity in the Metaverse

An aurora accents Earth's atmospheric glow underneath a starry sky

I had the privilege to chair a discussion about identity in the metaverse at the Identiverse conference in Denver in June 2022, and had great fun discussing the new landscape for identity with Heather Vescent, Jonathan Howle, Katryna Dow and Gopal Padinjaruveetil. In order to frame my thoughts and get the discussion about identity and privacy going, I needed a mental model.

Do I need to upgrade my Fare Collection system to support CBDC?

automated ticket machine

This week, a press release from China announced they had expanded acceptance of the digital Yuan onto public transport in 12 cities. China has led the way in the development of a Central Bank Digital Currency (CBDC), launching a trial in 2020 which has been expanding steadily. But what does this mean? What is a CBDC? And when will I need to consider accepting them in public transportation?

Be on the smart side of the Great Reset

planet earth

The human society is now at crossroads – demanding changes in our lifestyle, health choices, economics, and civil liberties. These changes are accelerated by climate change, political response to the pandemic, the need for racial and gender equality, human migration, and of course, a few break-through technologies such as digital automation, data analytics, and machine-learning (AI). So where are we heading? The call for “Great Reset” has been reverberating since the past few years and is now getting louder and louder. This was the topic of the virtual fireside chat by two visionaries on our Tomorrow’s Transactions webinar, Brett King and Dave Birch, discussing the societal and technological changes that are foreseen in the next few decades. This conversation was centered around Brett King’s (Richard Petty, co-author) book, “The Rise of Technosocialism and aligns with Consult Hyperion’s engagement with think tanks on global issues.  Our aim to is separate foresight and facts from fiction in trying to understand the trends in the market that our clients should watch-out for especially in payments, banking, transit, digital identity, and information security.

Will 2022 start to drive the future of Interoperability and Inclusion?

close up shot of a calendar

Our overriding theme of this year’s Live5 is interoperability which will lead to inclusion. Whether this is in payments or transit, identity or as a generalised trend what we’re seeing is a collapsing of the barriers between silos. In some areas this is happening more quickly than in others.

Payments are hard. That’s why the world’s leading payment organisations come to us.

Big Tech, Financial Data … and resilience for critical infrastructure

black android smartphone showing instagram and gmail application

Victoria Saporta, BoE executive director for prudential supervision, has said recently that minimum resilience requirements should be required for the tech giants’ (and others’) hosting services, before they may process and store banking data. We strongly support these comments. We have identified this issue as one of a number of new risks arising from modern financial systems architecture, in recent Structured Risk Analyses that we have carried out for financial and retail organisations in North America, Asia-Pac and EMEA.

On Mondex and CBDCs (again)

Introduction

We were delighted to get a lot of good feedback on Neil’s previous blog on Mondex Memories and CBDCs and its relevance to CBDCs and thought it would be interesting to respond to some of the more interesting – and difficult – points raised in a follow-up blog. Before addressing those I wanted to put the Mondex program into some historical context. They were very different days – we didn’t have an intranet until 1996, let alone internet access. There were no SDKs – although actually we did build a precursor to one of those – or APIs and the idea of remote payments was still in its infancy (although we did that too).

Mondex Memories and CBDC

Mondex paraphernalia

Deep in the mists of time (that is to say, the early-1990s), I led the team from Consult Hyperion responsible for Mondex specification, design and development. For those not familiar with paleo-payments, it was one of a clutch of (contact) smart card based electronic cash systems, none of which survived beyond, let’s say, early adolescence. There were two main reasons for their demise, one technological and one business. The concept was ahead of the capabilities of the underlying technology. Transactions took about the same amount of time as cash plus change, which wasn’t a compelling reason for anyone to leave their wallet behind. The promoters of the schemes (retail banks and payment brands) did not target particular niches where there may have been a business case (I always thought car parking might work) but instead blanketed retail outlets in particular cities or small countries. So, mostly unused devices were put under the counter, and people forgot about the schemes after an initial blaze of publicity.


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