Why online identification will come to crypto-currencies
The rise of the blockchain
In 2017 the blockchain entered mainstream parlance and the value of Bitcoin, a cryptocurrency based on blockchain technology, soared to stratospheric levels closing at around $20,000 – ten times higher than it had been four months earlier. Whilst the end of year hype might have subsided, the interest has not died down. According to CoinDesk news service, in the first quarter of 2018 tokens issued in initial coin offerings of other digital currencies surpassed that of all ICOs during 2017. This is giving rise to the need for online identity verification.
So what are the blockchain and crypto-currencies and why does identity verification complement these technologies. Instead of using a ledger to keep a central record, the individual blockchain records keep copies of every transaction made and thereby prevent the alteration of any one. Evidence exists of documented multipart contracts dating back to the time of the Magna Carta in the 1200s. Such contracts were written three times on parchment marked and separated by an inverted wavy ‘T’ then torn up, with two side pieces being given to the contracting parties and the bottom part being kept by the court. The document was called a ‘fine’, derived from the Latin for final agreement. If there was a dispute, the pieces could be brought together, the matching tears showed they were the matching counterparts and the ‘fine’ kept by the court prevented fraud through alteration, being the official central record.
Today’s blockchain replicates all records of every transaction immutably in every one of its other counterpart blockchains, obviating the need for the central ledger. Now, whereas in the 13th century, people would come together to agree a contract, modern technology allows this to happen remotely. And that makes it all the more important to be able to verify the identity of the person agreeing the contract.
Crypto-currencies and regulation
Crypto-currencies running on blockchain technology are a means of exchanging value where all the transaction details are all stored on the blockchain and not in the vaults of a central bank. The interest in and need for regulating digital or crypto-currencies is growing. Having gained a reputation for allowing anonymous payments, thereby facilitating crime and the laundering of the proceeds of crime, as crypto-currencies enter the mainstream it means that they can no longer be ignored by the authorities.
As the volume of assets being held in crypto-currencies increases, the need for regulation will grow. At the moment, according to the Economist, the cumulative value of all crypto-assets is equal to just 3% of the combined balance sheets of the central banks of USA, UK, Germany and Japan. While this is not yet globally significant, nor a risk to monetary stability, regulators around the world are getting increasingly vigilant.
At present, not all governments are treating digital currencies in the same way; some regard them an investment or security and some as a currency; some change the classification according to the digital token’s use – and this may change over time for a particular token. All of this is leading to different types of regulation being considered.
Some countries, including South Korea, have banned the use of anonymous crypto-currency accounts. China has banned crypto-exchanges and ICOs. This year, Japanese regulators have forced the closure of two crypto-currency exchanges after an earlier theft of over $500m due to lack of secure operating protocols. Some exchanges are advising people only to keep digital currencies in wallets during periods of trading. In a largely unregulated industry, the advice has certainly been ‘caveat emptor’. However, with increasing popularity and growing mainstream exposure, proper regulation to protect the unwary is just matter of time.
Digital currency and the need for online identity verification
The need for regulation and transparency is likely to mandate that anonymity is no longer and option and that mainstream tax, identity and it is likely that AML legislation will also start applying to digital currencies. Those digital currency exchanges that embrace the need for identity verification early are the ones that are most likely to positively influence the regulator and set the tone for success in the long run.
Over the next decade, blockchain technology is going to transform everything from health records to shipping and from smart contracts to payments. By its nature blockchain is globally accessible. Selified is ideally suited to identity verification for digital asset exchanges because of its ability to verify people from wherever they are in the world on any device.
Image by Andre Francois on Unsplash