US readers of a certain age will remember the old Lily Tomlin comedy bit where Ernestine, the loopy telephone operator, cheerfully inquired of anyone who answered: “Is this the party to whom I am speaking?”
The routine cleverly foreshadowed the central dilemma of the internet age—how do we—or our software surrogates--know with complete certainty that the person communicating with us from another computer or device is who they say they are?
It’s a problem that costs online merchants and financial institutions millions of dollars while exposing consumers to the dangers of too many passwords and too many hackers in a centralized repository. (See Equifax for details.)
Julie Esser, Chief Engagement officer of CULedger, a Denver-based CUSO (credit union service organization), explained the problem:
Digital identity has been a problem since the dawn of the internet and still remains challenging today. Even after 30 years, credit union members still have no way to present digital credentials to prove their online identities in the same way they are able to do in the physical world. In the physical world, credit union members can use government issued identification forms for all transactions that require photo identification. However, there is nothing like a driver’s license or passport that members can use for transactions online. Proving one’s identification online has primarily been restricted to biometric methods, such as passwords and challenge questions, which are both susceptible to fraud.
CULedger, a Denver startup that began life in 2016 as a consortium of credit unions exploring potential use cases for distributed ledger technology, is determined to fix the online identity problem, at least for the credit union industry which has 260 million members worldwide and over $1.7 trillion of circulating assets.
The company is joining forces with IBM, the presumptive leader in enterprise blockchain, creating a permissioned blockchain network where services can be shared among all credit unions around the world. Said, Esser:
Blockchain or distributed ledger technology removes the emphasis on biometric digital identification and replaces it with an incorruptible source. Because of the structure of distributed ledger technology—relying on scattered nodes, instead of a centralized location—this technology is ideal to serve as a decentralized “self-service” registry for public keys, which would serve as digital identification for members. By decentralizing identification, credit unions can enable true self-sovereign identity—a lifetime portable digital identity for any person, organization or thing that can never be taken away.
CULedger’s initial solution is a digital identity system called MyCUID that addresses the problem of having siloed online identities by using distributed ledger technology to provide a self-sovereign identity (SSI) that adheres to the privacy-by-design requirements of self-sovereign identity supported by the Sovrin Foundation. The tool uses a person-to-person network of distributed, private agents working in parallel with the distributed ledger to give credit union members a lifetime, portable digital identity that does not depend on any central authority and is nearly impossible for hackers to steal or corrupt.
MyCUID, which the company describes as the first global digital identity ecosystem for credit unions and their members, will become the foundation of the entire CULedger platform. All future applications, including those in CULedger’s current roadmap, like loan participations and cross border payments, will be enabled through a private, permissioned distributed ledger network.
Over time, IBM and CULedger plan to expand the scope of the collaboration beyond identity to use blockchain to support other services such as know-your-customer (KYC) and know-your-supplier regulatory requirements. Initial services on the CULedger blockchain network will be available to credit unions worldwide beginning later in 2019.
Blockchain has been so over-hyped in recent years that it is tempting to be automatically skeptical. Whether the distributed ledger technology (DLT) framework is an essential cog in the wheel of emerging technologies that will transform the world--robotics, automation, artificial intelligence (AI) and the Internet of Things (IoT)—remains to be seen.
But there are projects and permutations for which blockchain seems ideally suited. This appears to be one of them. The ability of credit unions and other financial institutions to cooperate and receive shared value from quickly exchanging sensitive data in a permissioned, individually controlled and transparent way could be transformative. Gartner predicts that blockchain’s value to the enterprise will grow to more than $360 billion by 2026, then surge to more than $3.1 trillion by 2030.