This is the third of three blogs about technologies to support contact-free use of public transport.
The radio again – I hear that the Transport Minister for England had just reported that there have been fewer than 400 fines for people failed to wear face covering on public transport. More than 115,000 travellers have been stopped and reminded that face coverings are mandatory, and 9,500 people prevented from travelling.
This post was written in collaboration with Neal Michie, Director, Product Management, Verimatrix.
Banks are facing massive disruption and change from many directions. The rise of app-only banks has made the need for traditional banks to have compelling app services an imperative. Banks have of course been building mobile apps for several years. If not already, they will soon be the most important channel for engaging with and serving customers. However, mobile banking apps will also become the primary focus of hackers, intent on getting access to other people’s information and money.
At Consult Hyperion we’re always interested in the latest news in cyber security and in case you haven’t heard, 2018 has started with the news that the most processors found inside current computers, tablets, phones and cloud servers are vulnerable to a new class of attack. These attacks have been named Meltdown and Spectre, and are caused by common optimisations built into modern processors. Processors designed by Intel, AMD and ARM are all affected to varying degrees and, as it is a hardware issue (possibly dating back to 1995 if some reports are correct), it could affect any operating system. It’s likely the machine you’re reading this on is affected – whether it’s running Windows, Macs, iOS, Android or is in “the cloud”!!
At a basic level, these vulnerabilities break down the fundamental security barriers between an application and the operating system (OS). This means that a malicious application running on your processor may be able to read your, or your OS’s, secrets which may include passwords, keys or possibly payment data, present in processor caches or memory.
I’m not going to discuss how the vulnerabilities achieve what they do (there’s plenty of sites which attempt to do this), however I’d rather consider its impact on people, such as our clients, who may be handling sensitive data on mobile devices – e.g. payments, banking information. If you do want to understand the low-level details of the vulnerabilities and how they work, I suggest looking at https://spectreattack.com/ which has links to the original papers on both Spectre and Meltdown.
So, what can be done about it? The good news is that whilst the current processors cannot be fixed, several operating system patches have already been released to try and mitigate these problems.
However, my concern is that as this is a new class of attack, Spectre and Meltdown may be the tip of a new iceberg. Even over the last week, the issue has changed from it only affecting Intel processors, to now including AMD and ARM to some extent. I suspect that over the coming weeks and months, as more security researchers (and probably less savoury characters as well) start looking into this class of attack, there may be additional vulnerabilities discovered. Whether they would already be mitigated by the patches coming out now, we’ll have to see.
It should also be understood that for the vulnerability to be exploited, there are a few conditions which must be met:
1. You must have a vulnerable processor (highly likely)
2. You must have a vulnerable OS (i.e. unpatched)
3. An attacker must be able to execute their malicious code on your device
For point 1, most modern devices will be vulnerable to some extent, so we can probably assume the condition is always met.
Point 2 highlights two perennial problems, a.) getting people to apply software updates to their devices and b.) getting access to appropriate software updates.
For many devices, software updates are frequent, reliable and easy to install (often automatic) and there are very few legitimate reasons for consumers to not just take the latest updates whenever they are made available. We would always recommend that consumers apply security updates as soon as possible.
A bigger problem for some platforms is the availability of updates in the first place. Within the mobile space, Microsoft, Apple and Google all regularly release software updates; however, many Android OEMs can be slow to release updates for their devices (if they release them at all). Android devices are notorious for not running the latest version of Android – for example, Google’s latest information (https://developer.android.com/about/dashboards/index.html – obtained 5th January 2018 and represents devices accessing the Google Play Store in the prior 7 days) shows that for the top 81% of devices in use:
• 0.5% of devices are running the latest version of Android – Oreo (v8.0, released August 2017)
• 25% are running Nougat (v7.x, released August 2016)
• 30% running Marshmallow (v6.0, released October 2015)
• 26% running Lollipop (v5.x, released November 2014).
It should be noted that Google’s Nexus and Pixel devices have a commitment to receiving updates for a set period of time, and Google is very keen to encourage OEMs to improve their support for prompt and frequent updates – for example, the Android One (https://www.android.com/one/) programme highlights that these devices get regular software updates.
If you compare to iOS, it’s estimated (https://data.apteligent.com/ios/) that less than a month after it was released in December 2017, over 75% of iOS devices are already running iOS 11.
Thinking specifically about mobile banking and HCE payment applications, which is what interests many of our customers – these applications should already be including protections to prevent, or at least detect, malicious attacks. These protections typically include numerous measures such as root/jailbreak detection, code obfuscation, data minimisation, white-box cryptography and so on.
If anything, these latest vulnerabilities are a useful reminder that security is not a single task within a project plan, ticked off when complete before moving onto the next sprint or task. Rather, it is an ongoing concern for the lifetime of the system – something that Consult Hyperion quietly helps its customers with. A year ago, few would have considered this class of attack to either have been possible, let alone something which needs to be actively mitigated.
I’m not sure if you’re supposed to have a favourite supply chain fraud or not but I do, and it is the famous case of the vegetable oil that almost bankrupted American Express (and went some way toward making Warren Buffet a multi-billionaire). The essence of the story is that a conman, Anthony “Tino” De Angelis, discovered that people would lend him money on the basis of commodities in the supply chain. His chosen commodity was vegetable oil (see How The Salad Oil Swindle Of 1963 Nearly Crippled The NYSE). Amex had a division that made loans to businesses using inventories as collateral. They gave De Angelis financing for vegetable oil and he took the Amex receipts to a broker who discounted them for cash. So he had tanks of vegetable oil and Amex had loaned him money against the value of the oil in those tanks, the idea being that they would get the money back with a bit extra when the oil was sold on. Now as it happened, the tanks didn’t much contain oil at all. They were mostly water with a layer of oil on top so that when the inspectors opened the tanks and looked inside they saw oil and signed off whatever documentation was required. Eventually the whole scam blew up and nearly took Amex down, enabling the sage of Omaha to buy up their stock and make a fortune.
Fortunately for us and unfortunately for conmen like Tino, the supply chain is one of the many industries that the blockchain is going to disrupt. As my good friend Michael Casey and his co-author Pindar Wong explain in their recent Harvard Business Review piece on the topic (Global Supply Chains are about to get Better, Thanks to Blockchain in HBR, 13th March 2017), blockchain technology allows computers from different organisations to collaborate and validate entries in a blockchain. This removes the need for error prone reconciliation between the different organisation’s internal records and therefore allows stakeholders better and timelier visibility of overall activity. The idea discussed in this HBR piece (and elsewhere) is that some combination of “smart contracts” and tagging and tracing will mean that supply chains become somehow more efficient and more cost-effective.
An aside. I put “smart contracts” in quotes because, of course, they are not actually contracts. Or smart. Bill Maurer and DuPont nailed this in their superb King’s Review article on Ledgers and Law in the Blockchain (22nd June 2015), where they note that smart contracts are not contracts at all but computer programs and so strictly speaking just an “automaticity” on the ledger. (Indeed, they go on to quote Ethereum architect Vitalik Buterin saying that “I now regret calling the objects in Ethereum ‘contracts’ as you’re meant to think of them as arbitrary programs and not smart contracts specifically”.)
Using the blockchain and “smart contracts” sounds like an excellent idea and there’s no doubt that supply chain participants are taking this line of thinking pretty seriously. Foxconn (best known as the makers of the iPhone) are a recent case study. In March 2017 they demonstrated a blockchain prototype that they used to loan more than six million dollars to suppliers. I should note in passing that the article didn’t make it clear why they were using a blockchain (as opposed to any other form of shared ledger) or why they were using a shared ledger rather than a database but, like Merck and Walmart and many others, Foxconn is a serious business that sees promise in the technology so we should take the case study seriously.
While I was reading about Foxconn, and a couple of other related articles in connection with a project for a client, I started to wonder just how exactly would the supply chain industry be disrupted? How would the blockchain have fixed the salad oil problem? It’s very easy to think of a fancy fintech setup whereby smart contracts took care of passing money from the lender to the conman when the tanks were certified by the inspectors but as sceptical commentators (e.g., the redoubtable Steve Wilson of Lockstep) frequently point out, transactions using blockchain technology are only “trustless” insofar as they relate to assets on the blockchain itself. As soon as the blockchain has to be connected to some real-world asset, like vegetable oil, then it is inevitable that someone has to trust a third-party to make that connection.
Trusting these third parties can be a risk. Another of my favourite scandals (I have quite a few, I should have mentioned that) is the horsemeat scandal that swept Europe on the 50th anniversary of the salad oil scandal. Basically horsemeat was being mixed with beef in the supply chain and then sold on to the suppliers of major supermarkets in, for example, the UK. One of the traders involved was sentenced to jail for forging labels on 330 tonnes of meat as being 100% beef when they were not. Once again, I am curious to know how a blockchain would have helped the situation since the enterprising Eastern European equine entrepreneur would simply have digitally-signed that the consignment of donkey dongs were Polish dogs and no-one would have been any the wiser. It is not clear how a fintech solution based on blockchains and smart contracts would have helped, other than to make the frauds propagate more quickly.
The reason that I am interested in scandals like this one is that the tracking of food features as a one of the main supply chain problems that advocates hope the blockchain will solve for us. Work is already under way in a number of areas. I understand that Walmart have carried out some sort of pilot with IBM to try to track pork from China to the US and another pilot was used to track tuna from Indonesia all the way to the US. But if someone has signed a certificate to say that the ethically-reared pork is actually tuna, or whatever, how is the shared ledger going to know any different? A smart contract that pays the Chinese supplier when the refrigerated pork arrives in a US warehouse, as detected by RFID tags and such like, has no idea whether the slabs in the freezer are pork or platypus.
If you do discover platypus in your chow mein, then I suppose you could argue that the blockchain provides an immutable record that will enable you to track back along the supply chain to find out where it came from. But how will you know when or where the switcheroo took place? Some of the representations of the blockchain’s powers are frankly incredible, but it isn’t magic. It’s a data structure that recapitulates the consensus of its construction, not a Chain of True Seeing with +2 save against poison. So is there any point in considering a form of shared ledger technology (whether a blockchain or anything else) for this kind of supply chain application? Well, yes. We think there is.
Let’s go back to the first example, the great vegetable oil swindle. Had American Express and other stakeholders had access to a shared ledger that recorded the volumes of vegetable oil being used as collateral, the fraud would have been easily discovered.
“If American Express had done their homework, they would have realized that De Angelis’s reported vegetable oil ‘holdings’ were greater than the inventories of the entire United States as reported by the Department of Agriculture. “
Interesting. So if the amounts of vegetable oil had been gathered together in one place, the fraud would have been noticed. What could that one place be? A federation of credit provider’s databases? A shared service operated by the regulator? Some utility funded by industry stakeholders? How would they work? What if the stakeholders instead of paying some third party to run such a utility used a shared ledger for their own use? It would be as if each market participant and regulator had a gateway computer to a central utility except that there would be no central utility. The gateways would talk to each other and if one of them failed for any reason it would have no impact on the others. That sounds like an idea to explore further.
How might such a ledger might operate? Would American Express want a rival to know how much vegetable oil it had on its books? Would it want anyone to know? The Bank of Canada, in their discussion of lessons learned from their first blockchain project, said that “in an actual production system, trade-offs will need to be resolved between how widely data and transactions are verified by members of the system, and how widely information is shared”. In other words, we have to think very carefully about what information we put in a shared ledger and who is allowed to say whether that information is valid or not. Luckily, there are cryptographic techniques known as “Zero Knowledge Proofs” (ZKPs) that can deliver the apparently paradoxical functionality of allowing observers to check that ledger entries are correct without revealing their contents and these, together with other well-known cryptographic techniques, are what allow us to create a whole new and surprising solution to the problem of the integrity of private information in a public space.
It is clear from this description that a workable solution rests on what Casey and Wong call “partial transparency”. At Consult Hyperion we agree, and we borrowed the term translucency from Peter Wagner for the concept. For the past couple of years we have used a narrative built around this to help senior management to understand the potential of shared ledger technology and form strategies to exploit it. Indeed, in some contexts we focus on translucent transactions as the most important property of shared ledgers and as a platform for new kinds of marketplaces that will be cheaper and safer, a position that you can find explored in more detail in the paper that I co-authored with my colleague Salome Parulava and Richard Brown, CTO of R3CEV. See Towards ambient accountability in financial services: shared ledgers, translucent transactions and the legacy of the great financial crisis.Journal of Payment Strategy and Systems10(2): 118-131 (2016).
As you might deduce from the title, in this paper we co-opt the architectural term “ambient accountability” to describe the combination of practical Byazantine fault tolerance consensus protocols and replicated incorruptible data structures (together forming “shared ledger” technology) to deliver a transactional environment with translucency. As Anthony Lewis from R3CEV describes in an insightful piece on this new environment, it is much simpler to operate and regulate markets that are built from such structures.
The reconciliation comes as part of the fact recording; not after. Organisations can “confirm as they go“, rather than recording something, then checking externally afterwards.
In this way the traditional disciplines of accounting and auditing are dissolved, re-combined and embedded in the environment. Smart contracts wouldn’t have disrupted Tino’s business, but ambient accountability would have uncovered his plot at a much earlier stage, when the near real-time computation of vegetable oil inventories would delivered data on his dastardly plot. You’d hardly need Watson to spot that inventories greater than the United States entire annual production ought to be looked into in more detail.
Perhaps we need to shift perspective. It is the industry-wide perspective of the shared ledger, the shared ledger as a regtech, that makes the disruptive difference to supply chains, just as it is the shared ledger as a regtech that will reshape financial markets by creating environments for faster, cheaper and less opaque transactions between intermediaries that have to add value to earn their fees rather than rely on information asymmetries to extract their rent. As the World Economic Forum’s report on the Future of Financial Services says, “New financial services infrastructure built on [shared ledgers] will redraw processes and call into question orthodoxies that are foundational to today’s business models”. We agree, and if you want to make this a reality for your organisation, give me or my colleagues at Consult Hyperion a call. We will provide help, not hype.
Incidentally, the brilliant Maya Zahavi from QED-it will be explaining how ZKPs can transform supply chains at the 20th annual Consult Hyperion Tomorrow’s Transactions Forum on April 26th and 27th in London. Run, don’t walk, over to that link and sign up now for one of the few remaining delegate places and to be kept up-to-date in the future, sign up for our mailing list as well.
[Sincere thanks to my colleague Tim Richards and to my former colleague Salome Parulava for their helpful comments on an earlier draft of this post.]
Once again I’ve been involved in a series of Twitter exchanges about the relationship between cash and anonymity. Many in the Bitcoin community see Bitcoin’s sort-of-anonymity as an important characteristic because it defends the individual against state power and they berate me for wanting to replace cash “in circulation” with a digital alternative. Cash, they claim, is freedom. One odd aspect of this argument is that the cash is, of course, a byproduct of the leviathan they affect to despise.
Narayana Kocherlakota, formerly the head of the Federal Reserve Bank of Minneapolis and now a prolific economics blogger, penned a recent article on the abolition of cash. Kocherlakota makes the point that if you don’t like government meddling in the proper functioning of free markets, then you shouldn’t be a big fan of central bank-issued banknotes.
I’m not, as it happens. In fact, I think we should start to consign them to the dustbin of history, beginning with the $100 bill, the £50 note and that affront to law-abiding people everywhere, the Swiss 1,000 franc note. There are an increasing number of people coming around to my way of thinking, including the former chief economist to the International Monetary Fund (IMF) Kenneth Rogoff, who recently published a book entitled “The Curse of Cash” in which he argues that banknotes should be withdrawn not only because of their use in criminal endeavours but because they prevent central banks from using their full range of monetary policy tools.
Kocherlakota doesn’t mention it explicitly, but should cash be abolished in order to remove the lower bound to interest rates, a potential replacement would be a new central bank-issued emoney, either Fedcoin or what Dave Birch has dubbed FedPesa.
But without wishing to be accused of pedantry, what does he mean by “central bank-issued electronic money”? In his presentation on ’The Zero Lower Bound and Anonymity”, Kocherlakota tends toward some form of cryptocurrency to replace fiat currency rather than a central bank digital currency and one of the reasons for this is his (entirely reasonable) concern about anonymity. This point is illustrated by literary reference.
In Atwood’s dystopian Handmaid’s Tale, a theocratic government named the Republic of Gilead has taken away many of the rights that women currently enjoy. One of the tools the Republic uses to control women is a ban on cash, all transactions now being routed digitally through something called the Compubank
It’s been many, many years since I read “The Handmaid’s Tale” so I went to my bookshelf to dig it out and re-read that part. The narrator talks about how the evil junta in charge of future America took over and says that it would have been harder if there had still been paper money. I don’t see how. North Korea has everyone using paper money and virtually no cards. Denmark has virtually no paper money and everyone uses cards (and phones). To be frank, in the modern world, I don’t think cash is that closely related to dictatorship.
The point I wanted to make here, though, is that it is wrong to present the alternatives as total surveillance and anonymity. I simply do not accept that the alternative to the unconditional anonymity of cash and the crime that goes with it is a dystopian, totalitarian nightmare. That’s only one way to design a circulating medium of exchange and it’s not the way that I would design it. I would opt for something along the lines of a universal pseudonymous mechanism capable of supporting an arbitrary number of currencies, a Mondex de nos jours, an M-PESA with go-faster stripes. In a world where there are completely, unconditionally anonymous payment mechanisms in widespread use there’s no way to stop very bad people from using them to do very bad things, so I’d prefer a world in which there are pseudonymous mechanisms that defend against routine surveillance and petty intrusion but allow societies legitimate interests to protect against crime.
Does this mean that anonymous mechanisms should be banned? Probably not, for the good reason that it would be impossible to do so. More likely would be a situation shown in the diagram below where there is an anonymous layer that has a pseudonymous layer on top of it and a absonymous (I made this word up) on top of that. People, governments and businesses would use this pseudonymous layer: the anonymous money would be useless for almost all transactions for almost all people since no-one would accept it. I would love to give this kind of anonymous money the generic name ZeroCash, after the William Gibson novel (“Count Zero”) in which one of my all-time favourite quotes about the future of money appears:
‘He had his cash money, but you couldn’t pay for food with that. It wasn’t actually illegal to have the stuff, it was just that no- body ever did anything legitimate with it.’
Unfortunately, someone else has already beaten me to it and not as a generic name! [See E. Ben-Sasson, A. Chiesa, C. Garman, M. Green,I. Miers, E. Tromer, and M. Virza, “Zerocash: Decentralized anonymous payments from bitcoin” in IEEE Symposium on Security and Privacy, SP 2014, Berkeley, CA, USA, May 18-21, 2014. IEEE Computer Society, pp.459–474 (2014)]. Well, I’m fighting back by starting use zerocash (with the lower case initial) to mean generic unconditionally anonymous electronic cash. The wallet that this electronic cash is stored in is an anonymous digital identity. It’s just a string of bits.
Now, you could imagine some form of zerocash in circulation as a cash alternative but not accepted in polite society (i.e., any attempt to spend it would be regarded as prima facie evidence of money laundering and exchanges would be barred from handling it). Polite society instead decides to protect privacy through managed conditional anonymity, or pseudonymity. A pseudonymous currency that is managed by a central bank but where transactions take place on a distributed ledger is much more like “RSCoin”, the cryptocurrency proposed by George Danezis and Sarah Meiklejohn at UCL [Danzis, G. and S. Meiklejohn. “Centrally Banked Cryptocurrencies”, NDSS ’16, 21-24 February 2016, San Diego, CA, USA] using Ben Laurie’s “mintettes” concept. By creating a pseudonym that is bound to the zerocash digital identity, we make it useful (provided that the binding is done by someone who trusted in the relevant transactional use cases).
Why bind it in this way? Well, there is the usual privacy paradox to be dealt with here: I want my transactions to be anonymous, but everyone else’s to be not anonymous in case they turn out to be criminals. I cannot see any way round this other than pseudonymity. There are people out there (e.g., my colleagues at Consult Hyperion) that know how to design systems that work like this, so there’s nothing stop the FATF, Bank of England, or Barclays or anyone else from starting to design the future, privacy-enhancing electronic money system that we need.
Let’s move on. For certain purposes, pseudonymity might be deemed insufficient (e.g., KYC) and so that nym layer is needed too. This means we need to bind the pseudonym to real-world legal entity. A bank is a good place to form this binding, since they’ve already done the KYC and know who I am. So I give present my pseudonym to them and they can bind it to my “real” name to form a nym. In the example below, Barclays know who I really am, and I can present my Barclays nym where needed, but most transactions with counterparties take place at the pseudonymous layer and I can present my Vodafone pseudonym “Neuromancer” there if I want to. My counterparty doesn’t know that I am Dave Birch, only that Vodafone know who (and presumably, where) I am. For the overwhelming majority of day-to-day transactions, this is more than adequate. This layered approach (show below) seems to me a viable vision of a working infrastructure. Few transactions in the top layer (for privacy), most transactions in the middle layer, few transactions at the lower layer.
So in this made-up example, Barclays know my “real” identity and Vodafone knows a persistent pseudonym tied to my phone number. (Of course, I could go to Barclays and choose to bind my Vodafone identity to my Barclays identity, but we don’t need to think about this sort of thing here.) I’m going to reflect on how these bindings might work in practice more in the future, but for now I want to circle back to that opening concern about losing the anonymity of cash. Here’s another version of that meme that I read I day or two ago.
Cash—the familiar, anonymous paper money and metallic coins that most of us grew up using—isn’t just convenient, it’s also a powerful shield for our autonomy and our privacy.
It really isn’t. Your privacy is being taken away because of Facebook, people wearing Snapchat shades and drones, not because of debit cards. And none of this has anything to do with dictatorship. I wouldn’t want to live in the America of the “The Handmaid’s Tale” whether it had anonymous payments or not. I understand the concerns of those concerned with privacy (as I am) that there might be an inevitable tendency for a government to want to trespass on the pseudonymous infrastructure in the name of money laundering or terrorism, but that’s a problem that needs to be dealt with by society, not by technology. I don’t know what the answer to that is, but I do know that we need to get the conversation started in a more sophisticated way.
The World Economic Forum (WEF) has just published their report on “A Blueprint for Digital Identity”. It begins with a disclaimer from “Deloitte”* saying that “This publication is not a substitute for such professional advice or services, nor should it be used as a basis for any decision or action that may affect your business”. But what’s the point of reading a report that isn’t going change any decision or action that you make? I think quite the opposite: you should read the document and make the decision to have a strategy towards digital identity and start to explore different scenarios covering how it will affect your business right away.
First, let me admit that I was excited to see that WEF/Deloitte* have finally caught up with Consult Hyperion’s thinking on this kind of thing. Back in 2008, I wrote that:
Banks ought to be looking at both providing and consuming identity services and developing better identity and authentication services not merely for their internal use to reduce phishing and pharming but as a line of business in an online society. They are the obvious category of institution to provide credentials, manage personal information and deliver identity into the marketplace.
The WEF report says that “There is a strong business case for Financial Institutions to lead the development of digital identity systems” and goes out to categorise these are cost reduction, new revenue opportunities and transformational new models (i.e., outside core banking). I agree that it’s important to look at the saving money and making money opportunities in this way because in any bank that I’ve spoken to about this sort of thing, it’s been clear that the saving money business case has to stack up before there will be any investment.
As for the blueprint, the report suggests three approaches, – the institution, the consortium, the industry – which I paraphrase here:
A single institution could create its own system, focusing on cost saving but with limited potential for further adoption (but I think ”ChaseID” would struggle against “AppleID”);
A consortium could create a co-opetition infrastructure along the lines of the payment networks (some sort of financial services passport);
The financial services sector as a whole could create some form of industry identity utility that could be used to deliver “wholesale” identity services (I could get gas, electricity and identity all from the same retailer);
I’m rather in favour of the middle option as I think it delivers immediate improvements to the day-to-day transactions of modern life and it is, above all, feasible. But what exactly would it implement? The model of identity transactions that the WEF present (page 43), which divides identity transactions into authorisation, attributes and authentication is I think a little too narrow. The model we use at Consult Hyperion (“Three Domain Identity”, or 3DID) provides a better platform for discussion and exploration (but then I would say that wouldn’t I) because it makes the relationships between identities, attributes, credentials and so on more explicit.
When it comes to discussing archetypes (or “marketectures”) that will make sense (page 62), the use of the 3DID model makes it easier to understand the different options but considering who will control each of the domains. If, as WEF recommend, it is the financial institutions who control the Digital Identity and they link this to a variety of Mundane Identities from different sources and well as to a potentially large numbers of Virtual Identities (where credentials are held, essentially) it gives them a pivotal role. This might be in a federated structure, where each banks holds its own KYC and makes it available to other banks, or some other options. However it’s done, the authentication (proving you control the digital identity) is another matter.
One of the reason why I have such an interest in the “middle way” WEF blueprint is that I’ve been part of a techUK working group looking at this since 2014.
A ‘financial services passport’ refers to an aspirational digital identity, issued by UK financial services providers, and mutually recognised across the financial services industry.
Such a passport would not only be used for financial services and for the benefit of financial institutions. It could be used to improve all sorts of services that desperately need a proper identity infrastructure. It could with internet dating, protecting people on twitter from trolls, access to adult services and other “sharp end” applications of digital identity that would be transformational not only for bank revenues but also for consumers in the mass market. The solutions to the big, immediate problems in these areas come not from the digital identity itself but from the virtual identities built on top of it, because the virtual identities are a way to communicate attributes rather than identity.
So what might banks do with your identity once they’ve got it safely locked away in their vaults? Well, one idea, particularly popular with me, is that they might give you a safe, pseudonymous virtual identity to go out an about with.
The idea of strong pseudonymity is particularly appealing: a pseudonymous virtual identity with a bundle of credentials attested to by regulated financial institutions should be more than enough for almost all day-to-day transactions. This would allow for a new tranche of what economists call “incentive functions” to be created by banks, encouraging transactions where none would have taken place otherwise.
But back to the WEF report. In conclusion, despite my preference for our model (!), when it comes down to it, I think that the middle way (the consortium approach) is the place to start and I strongly agree with the principal recommendation of the report, which is that (page 101) “Implementation of a digital identity system should follow a bottom-up approach”. What the WEF calls “natural identity networks” I might be very tempted to label”communities”. So let’s create identity solutions for communities (starting with the financial services passport for the retail financial community of customers, providers and regulators) and find ways to interconnect them rather than trying to think up some kind of top-down “World ID” for the communities to implement.
* “Deloitte” refers to one or more of Deloitte Touche Tohmatsu Limited, a UK private company limited by guarantee (“DTTL”), its network of member firms, and their related entities. DTTL and each of its member firms are legally separate and independent entities. DTTL (also referred to as “Deloitte Global”) does not provide services to clients.
This means that organisations should plan for investments in more sophisticated security infrastructure (you can’t have privacy without security) and that these should be on a roadmap that exploits this transition. I think we may be getting closer to this transition time, because I notice that Apple appear to taking quite a big step forward to improve the privacy of individuals in a networked, hyper-connected world by introducing “differential privacy” in its products.
Differential privacy provides a way to mathematically guarantee that statistics about a pool of data collected from many people can’t be used to reveal much about the contribution of any one individual. Apple has built it into the new version of its mobile operating system, iOS, for iPhones and iPads to be released this fall.
If you’re wondering what this means, and can’t understand the wikipedia article (I couldn’t), let me give you an example from some software that I wrote many, many years ago. I’ll use the example of recreational drug use, although this isn’t what the project I worked on was about (well, not during daylight hours, anyway).
Suppose for some reason — e.g., public health planning — the government wants to know how many people smoke dope. Imagine that there’s an app on your phone that asks you if you smoke dope. So it asks you “Do you smoke dope?”. The app sends your answer back to some survey database big data cloud thing. Now the big data cloud thing can tell other people (e.g., the government) that you smoke dope but that means that the police will know and also if hackers get into the survey database big data cloud thing they could blackmail you (or sell you dope).
But there is another privacy-enhancing way to do this.
The app asks you if you smoke dope. You answer. Then the app tosses a coin. If the coin comes down heads, then the app tells the big data cloud thing “yes”. If the coin comes down tails, then the app tells the big data cloud thing whatever your real answer was.
Let’s say 10 million people answer. In the big data cloud thing, there are seven million yes answers and three million no answers. Remember, because the coin toss is fair, then five million of the answers will be a yes anyway. So you know that five million of the yes answers were there because of the coin coming down heads, and you can ignore them because they are not the real answer. You can take away five million of the yes answers as down to random chance.
Now you are left with the remaining five million real answers. There are the two million yes answers and three million no answers that are not down to random chance. You can therefore deduce that 40% of the population smoke dope.
Now, if hackers or the police get into the database and discover a yes answer next to your phone number, they cannot tell whether it is a real yes or a yes because of the coin toss. And you don’t want to reveal that you smoke dope, you can say that’s because of the coin toss.
Thus, the statistics for the population are correct and you know that 40% of the population smoke dope but you cannot tell whether any individual person smokes dope.
Now the differential privacy used by Apple is more complex than this simple example, but you get the point, and good on them for taking practical privacy-enhancing action whether it is to advance the sum total of human privacy or to put pressure on Facebook and Google. Either way, making privacy part of the proposition that might sway the customer’s choice is a very good thing.
Financial inclusion is necessarily built on a foundation of customer identity, but the rush to inclusion and the consequent focus on mass registration in many countries has placed at risk the citizens’ rights to privacy – even where these are recognised in law. But the mere fact of being excluded should never mean that someones right to privacy is in any way diminished.
With support from Omidyar Network, Consult Hyperion has undertaken a global review of the privacy and data protection aspects of digital identity services, with particular reference to their relevance for financial inclusion. We have reviewed the various digital identity initiatives around the world from a privacy perspective. Building on this framework, we have developed a ‘roadmap’ for digital identity that ensures that privacy, and the needs of regulatory authorities, can be built into digital identity services, ensuring the drive towards financial inclusion can be at its most effective. We hope that this roadmap will be a useful contribution to the industry as it considers how best to deliver digital identity to those most in need.
The key elements of this roadmap are as follows.
Put the individual at the centre of privacy protection
This does not only mean giving individuals control over how their personal data is used; it needs to be reflected in the entire approach to the digital identity system. In order to avoid low levels of take-up and use, it is essential that the emphasis be placed on user needs, rather than vendor-driven use cases or so-called “gold standard” solutions.
Provide an effective legal environment
An effective legal environment must be in place that contains, and can enforce, legal remedies to prevent or punish abuses of personal data. An effective legal environment will also increase confidence that any contractual measures put in place as part of the trust framework to ensure privacy can be enforced.
Design in privacy from the start
There is widespread recognition that privacy should be designed into any system from the start rather than bolted on as an afterthought. Privacy–by–design requires a careful understanding of the expected goals of the identity system, an appreciation of the distinctive characteristics of the context of use and an awareness of the technological capabilities and privacy risks associated with proposed next generation digital identity systems.
Separate identification from authentication and authorisation
Many existing identity systems combine identification and authentication activities within the scope of the identity provider. Separating out identification from authentication allows for the relatively rapid roll out of basic digital identity credentials, perhaps issued to all but based on low assurance identity data. The quality of the digital identity can be enhanced over time, in part simply through a history of ownership and use or by incorporating additional data points.
Furthermore, if the basic digital identity credentials only show that the citizen is unique and identifiable and not include other data attributes by default, this will allow future developments to minimise disclosure of data. Today identity systems often include a default data set that is always shared, even when it is not necessary for the service being accessed.
Improve authentication then identification
In an ideal world, it would be desirable to move directly to high quality identification and high quality authentication. In practice, however, the time and effort to improve the quality of these aspects of digital identity are different. In general, improvements to authentication quality are likely to be quicker to achieve than improvements in identification quality.
Provide a viable commercial model that disincentivises abuse of personal data
Whilst the monolithic identity providers like Facebook and Google offer easy to use digital identity credentials, their business models could run counter to consumer privacy as key revenue streams come from sharing individual and aggregate customer data. Whilst it is possible to constrain such actions contractually and technologically, long term the commercial model must be designed so that incentives to protect privacy are aligned.
Consider who will pay for the identity system
If identity credentials are to become a key infrastructure for a society, then important questions of how they are to be paid for arise. There are different models of charging for infrastructure provision that can be drawn upon, but choosing the right payment model can be problematic whether the identity provider is a government agency or a commercial body.
Address questions of liability
Service providers should not be held liable for actions based on properly authenticated identity claims. What then of the liability of the identity providers? Here the complexity of the liability model grows as benefits and risks are shared unequally. In extremis, the identity provider privatises the some of the benefits (e.g. payments for authentications) but socialises the risks (e.g. complete failure of trust in the identity system as a whole).
Review the role of compulsion
For countries introducing new identity credentials, questions of consent and compulsion become particularly significant from a market and rights perspective. They may cause significant disruption to the roll out of system. In such cases it is frequently stated that the new identity system is voluntary, not compulsory and that individuals can always choose not to have an identity credential. In this case, as the critical mass of credential holders develops, effective compulsion can arise. However, evidence from Europe suggests that the various electronic identity cards are used infrequently because most people have infrequent access to public services and those that do have more frequent access rarely need to formally identify themselves each time.
All of the underlying issues, and the elements of the proposed roadmap, are explored in detail in the report available here. It’s very detailed piece of work, so you might want to being with the Executive Summary that is available here. We are genuinely curious about your views and look forward to all feedback.
I think I’ll just read John Lanchester’s superb piece about bitcoin in the London Review of Books one more time. It’s hard to choose a favourite part of such an excellent article, but if I was pressed to do so, I suppose it would be this part:
David Birch is the author of a fresh, original and fascinatingly wide-ranging short book about developments in the field, Identity Is the New Money. His is the best book on general issues around new forms of money, and new possibilities generated by blockchain technology.
John is much too kind. And is a much better writer than I am, which is why his piece is so good. His basic question about where we are going next is fascinating and has been at the heart of some heated debates that I’ve been involved in recently, including a stand-up with a bunch of very clever people at the European Blockchain Congress in London.
My preferred method of accelerated learning is arguing with smart people, and the Congress delivered them in spades. But before I come back to this particular argument, let’s just frame the big picture. First of all, no-one would deny that the bitcoin blockchain is a triumph of technology and engineering and innovation and ingenuity. Statistically, almost no-one uses it, but that’s by the by.
“The total addressable market of people who want to buy bitcoin is very, very thin,”
Indeed. And most of them aren’t in America or any other developed market. Why? Well, bitcoin is a super-inefficient form of digital currency that was designed to solve one problem (uncensorability). If I’m trying to get my last few dollars out of Caracas before the power is shut off permanently then bitcoin might provide a rickety bridge to US Dollars, but if I’m trying to pay for a delicious burrito at Chipotle then bitcoin is pointless. However, and this is what the argument at the Congress (in the picture above) made me think about, there may be other factors that mean the bitcoin blockchain will obtain mass market traction.
What factors? Well, here are two that were touched on during the discussion pictured above, together with my more considered reflections on them.
One factor might be irreversibility. I think we all understand that you can’t build an irreversible payment system on top of a reversible payment system (such as direct debits in the UK) but you can build a reversible payment system (which is what society actually wants) on top of an irreversible one. That’s a good argument for having an fast, free and irreversible payment system that can be built on to provide a variety of different payment schemes suited to particular marketplaces. In the UK we already have this, it’s called the Faster Payment Service (FPS). Once the Payment Systems Regulator (PSR) has finished opening up access to FPS and once FPS can be accessed efficiently through the “XS2A” Application Programming Interaces (APIs) that will be put in place by the Second Payment Services Directive (PSD2), then we ought to be able to unleash some creativity in the developer community and perhaps build a reversible payment scheme on top of this irreversible infrastructure (I’m not the only genius to have thought of this: MasterCard are one of the bidders). Then it wouldn’t matter whether the scheme used the bitcoin blockchain or the FPS or NPP in Australia or TCH in the US or Ripple or anything else: the choice would come down to price and performance. Perhaps bitcoin would then be a choice, although I’m not sure about it.
Another factor might be anonymity. No-one who actually thinks about it wants anonymity. What they want is privacy. But there is a similar asymmetry as in the case of irreversibility. You can’t build an anonymous system on top of a non-anonymous system but you could build a privacy-enhancing transaction system on topic of an anonymous system and since I’m rather wedded to the idea of private payment systems, I find this an interesting combination. Again, would bitcoin be a choice for this? That’s not clear to me at all.
What if those factors turn out to be important enough to build new services, but not for creating a currency? This would support the view that a blockchain, although not necessarily the bitcoin blockchain, might well be the shared security service that society needs to anchor a new generation of online transactional services. As time goes by, this strikes me as a more and more interesting possibility. I mentioned it a couple of weeks ago.
Dr. Wright says “The mining of bitcoin is a security service that alone creates no wealth”. So to return to the point above, the sheer volume of mining going on (provided it does not become concentrated) means that there is a very, very secure piece of infrastructure out there. This infrastructure may be used to “anchor” all sorts of new services that need security as I said above. Some of them may be payments (as the Lightning folks hope) but most of them will not be.
So, to get back to John Lanchester’s piece, where might we be going next? I’m pretty sure that we’ll soon see another more efficient blockchain that will untangle the cryptocurrency from the carrier by providing some other incentive for mining (perhaps more like Ethereum, who knows). This, the Watt blockchain that will replace the Newcomben blockchain that we have now, could well be the new supranational security infrastructure that, as some claim, will be as important as the Internet itself because it will provide the security layer that the Internet should have had in the first place.
The Gartner hype cycle is jolly bullish on autonomous vehicles, which I’m really looking forward to. According to Jerry Kaplan’s fascinating “Humans need not apply”, switching to autonomous vehicles in the US will save thousands of lives and billions of dollars every year. Personally, I couldn’t care less if I never drive a car for myself ever again, and I hope that Woking will become an autonomous vehicle only zone as soon as possible. Sadly, this won’t be for a while.
While autonomous vehicles are still embryonic, this movement still represents a significant advancement, with all major automotive companies putting autonomous vehicles on their near-term roadmaps.
Gartner are even more bullish on what they call autonomous field vehicles (which I think means drones, combine harvesters and such like) and predict that these will be around in 2-5 years time, just like enterprise 3D printing and cryptocurrency exchanges. I couldn’t help but notice, though, that their very same hype cycle puts digital security at least 5-10 years out. So they are forecasting that there will be vehicles running around for some years before we are able to secure them, 3D printers inside organisations printing things for years before we are able to protect them and people trading money years before we can stop hackers from looting them. Actually, I agree with Gartner’s prediction, as it’s entirely congruent with my own #IDIoT line of thinking, which is that our developments in connection technologies are accelerating past our developments in disconnection technologies. And if you don’t care what I think about it, you probably do care what Vint Cerf thinks about it.
“Sometimes I’m terrified by it,” he said in a news briefing Monday at the Heidelberg Laureate Forum in Germany. “It’s a combination of appliances and software, and I’m always nervous about software — software has bugs.”
We’re busy going round connecting vehicles, equipment and money to the internet with having any sort of strategy in place for disconnecting them, which is much more difficult (doors are easy, locks are hard, basically). And with chips that we don’t even understand being built into everyday devices, the complexity of managing security is escalating daily. Look at the recently-launched “21” idea.
Its core business plan it turns out will be embedding ASIC bitcoin mining chips into everyday devices like USB battery chargers, routers, printers, gaming consoles, set-top boxes and — the piece de resistance — chipsets to be used by internet of things devices.
Really? Chips in everything? What could possibly go wrong? Oh wait, it already has. There’s something missing here: an identity layer. Hardly a new idea and I’m not the only person going on about it.
Everyone and everything will have an identity… We can’t scale a world that we can’t talk to, can’t control and can’t secure. Everything, including your toaster, you fridge and your car, will have an identity.
Yet nothing much is getting done, despite that fact that we already have plenty of case studies as to how bad the situation is already. Never mind smart fridges that give away your personal details or televisions that spy on you there are issues about the maintenance and upkeep of things in the field that create an identity management environment utterly different to anything are used to dealing with in the worlds of OIX, Mobile Connect, SAML and so on.
Did you buy a smart TV or set-top box or tablet any time before January 2013? Do you watch YouTube on it, perhaps through an app? Bad news: Google has shut down the feed that pushed content into the app.
It’s issues like this that make me want to focus on identity in the internet of things (or #IDIoT, as I call it) in the near term, so I was really flattered to be asked along by the good people at ForgeRock to talk about this at their London Identity Summit tomorrow. Really looking forward to exploring some of these ideas and getting feedback from people who know what they’re talking about. What’s more, Consult Hyperion and the Surrey Centre for the Digital Economy (CoDE) will be delivering a highly interactive workshop session designed specifically for the University of Surrey’s 5G Innovation Centre SME Technology Pioneer Members on 30th November 2015. This will include “business lab sessions” interleaved with presentations and discussion. We’ll be putting forward the #IDIoT structure to explore identity, privacy and security issues using our ‘3 Rs’ of Recognition, Relationship and Reputation. The event will be an opportunity to establish contacts with companies interested in the IoT space, as well as connecting with the broader University community and a select group of large enterprises so I’m really looking forward to it and, as you might imagine, you’ll read all about it here!
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