The Growing Importance of Digital Identity in Trade

As I regularly comment, trade is based on trust. In the world of digital trade, against the rise of mandated e-invoicing, the need for businesses and individuals to be able to digitally prove their identity will continue to grow until we have solutions that are as widely accepted as driving licenses and passports.

The EU’s EUDI regulation (European Digital Identity) on digital wallets that include a personal or business digital ID issued to every EU citizen and business is world class in this area. Digital ID, at its simplest, is a digital certificate that can be used to digitally sign any document or payload, and has public/private keys that are cryptographically secure. Cryptography is founded on mathematic principles that are too complex for most people (including me) to fully understand. The announcement that the EU’s Cybersecurity Agency (ENISA) has been asked to provide support creating national certification schemes for EU member states is a significant step forward.

The Need for Digital ID

In today's digital economy, the ability to verify identity online is not only a convenience but a necessity. Digital IDs enable secure, seamless interactions between parties in various sectors, including finance, healthcare, and e-commerce. They provide a means to establish trust and accountability, ensuring that both personal and business transactions are conducted with a high degree of security.

For individuals, digital IDs offer a way to protect personal information and reduce the risk of identity theft. In the business context, they help to streamline operations, enhance customer trust, and comply with regulatory requirements. For example, in the European Union, the General Data Protection Regulation (GDPR) mandates stringent data protection standards, which can be effectively met through the use of robust digital IDs to confirm consent.

Examples of Strong Digital ID Schemes

The Estonian e-Residency program is often cited as a benchmark for digital identity systems. Launched in 2014, it allows non-Estonian citizens to access Estonian services such as company formation, banking, payment processing, and taxation. The program uses a smart ID card that provides secure digital authentication and electronic signatures. According to the Estonian government, over 70,000 people from over 170 countries have applied for e-Residency, illustrating its global appeal and effectiveness.

Another strong example is India's Aadhaar system, which has issued unique identification numbers to over 1.2 billion residents. Aadhaar uses biometric data, including fingerprints and iris scans, to ensure that each ID is unique and tamper-proof. This system has been instrumental in improving access to government services and financial inclusion for millions of people.

More recently, Global Legal Entity Identifier Foundation (GLEIF) 's Legal Entity Identifier (LEI) and the verifiable LEI (vLEI) is an example of a digital solution designed to meet the needs of digital transactions (including finance and international trade) with annual, independent reconfirmation of the attributes. This contrasts with GS1 's Global Location Number that is highly flexible, can be easily viewed and widely used for digital supply chains but is self-certified so lacks the independent verification characteristics needed as a trusted digital ID.

Examples of Weak Digital ID Schemes

While there are shining examples of effective digital ID systems, there are also cautionary tales of weak implementations. One such example is the United States' Social Security Number (SSN) system. Originally created to track earnings and benefits, the SSN has evolved into a de facto national ID. However, the lack of security features and the widespread use of SSNs as identifiers have made them a prime target for identity thieves. According to a 2018 report by the Identity Theft Resource Center, over 450 million records containing SSNs were exposed in data breaches from 2005 to 2018.

Another example is the UK's National Health Service (NHS) patient ID system. The NHS number, while unique to each individual, does not incorporate sufficient security measures to prevent misuse. A 2017 BBC investigation revealed that fraudulent use of NHS numbers was a growing problem, with the 3.6 million more English patients registered than people recorded as living in England.

Consequences of Weak Digital ID Schemes

Weak digital ID schemes can have severe consequences, leading to financial losses, fraud, and a loss of public trust. One notable example is the 2017 Equifax data breach, which exposed the personal information of 147 million people, including SSNs. The breach resulted in widespread identity theft, with criminals using the stolen data to open fraudulent accounts, claim tax refunds, and commit other forms of fraud. The incident underscores the importance of having robust digital identity systems in place to protect sensitive information.

Another case is the misuse of Aadhaar data in India. Despite its strong design, the Aadhaar system has faced challenges, including unauthorized access to biometric data. In 2018, reporters from The Tribune newspaper were able to purchase access to Aadhaar data for just 500 rupees (approximately $7 USD), highlighting vulnerabilities in the system's security protocols. The incident prompted the Indian government to introduce stricter measures to protect Aadhaar data, demonstrating the need for continuous improvement in digital ID systems.

Conclusion

As the digital economy continues to expand, the need for robust digital identity systems will only grow. Strong digital ID schemes, such as those implemented in Estonia and India, provide a secure foundation for online interactions, enabling individuals and businesses to operate with confidence. Conversely, weak schemes can lead to significant risks, including identity theft and fraud.

It is crucial for governments and organizations to invest in trusted, user-friendly digital ID solutions that can adapt to evolving threats. ?For me, that means a well recognised certification scheme that all ID solutions can be audited against, and that users can rely on.

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