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Fraser EdwardsCEO and co-founder of checkingexplains what decentralized identity, also known as self-sovereign identity (SSI), is and outlines how incoming regulations are shifting data ownership to this new paradigm.
This new paradigm has the potential to both combat fraud and provide an alternative to the surveillance capitalism model.
Can you tell us about cheqd? What’s the story behind it?
Personal data has become a trap. “If you don’t pay for the product, you are the product,” meaning that the individual did not control the sharing of their data. Instead, their data is locked in the silos of these companies and is not portable.
cheqd was born to reverse these patterns. We are putting the individual at the center by allowing them to have full control over their personal data, making their data portable and enabling business models and revenue streams for this new paradigm.
We work in different sectors – the market potential for self-sovereign identity or decentralized identity is ~ 0.55 trillion USD. Within web 3, cheqd serves gaming, NFT, decentralized finance (DeFi) and more. For web 2 industries, our solution targets banking, supply chain, healthcare, travel, e-commerce, retail and more.
What’s happening right now in terms of identity fraud in the verticals you’re targeting? What are the main types of fraud that occur and how damaging can they be to business and UX?
Identity theft losses in the United States cost US$502.5 billion in 2019 and increased to US$712.4 billion in 2020. In the United Kingdom, the annual theft of UK-issued debit and credit cards reached worth 29.7 million GBP in 2020.
With the FTX bankruptcy or the Revolut cyberattacks, the need for secure and privacy-preserving decentralized identity solutions has never been more timely.
Since we serve both Web 3 and Web 2, it’s worth exploring them separately.
Web 2 individuals are usually targeted in relation to financial services or telecommunications, as these are the easiest to gain financially. There is also a lot of e-commerce fraud that is difficult to prevent as full KYC checks are expensive. Fraudsters are usually professionals and work through a series of personal details and accounts. cheqd directly addresses this by enabling trusted data sources, removing the vector of fraudsters entering data they have found or bought, for example, on the dark web.
In Web 3, identity fraud is much less sophisticated and usually targets individuals without prior access to personal data and accounts. The result is still the same as web 2, but draining funds through cryptocurrencies or assets like NFTs.
It’s a little different when it comes to web 3 companies. A good example is FTX, where funds were moved between entities without proper hygiene and worse, auditor records appear to have been circumvented or created fraudulently, ultimately harming individuals as consumers.
How can we mitigate these threats? What is a decentralized or self-sovereign identity (DID or SSI) and why is it important in the context of Web 3?
Self-Sovereign Identity (SSI) or Decentralized Identity (DID) is an identity method that centers the control, ownership (and sometimes storage) of information around the user. This gives people more control over what information they share (and how).
SSI enables a reusable KYC concept that offers a much more seamless way of identity verification. When identity verification is required, SSI can significantly reduce stress for users, improving the user experience while providing a compliant service. In short, the current KYC is ‘disposable’ while SSI with KYC makes KYC ‘recyclable’. This ultimately means that it is possible to build trust into many more interactions, although regulations must reflect this technical possibility.
Web 3 focuses much more on online interactions, including the metaverse(s). This means that trust becomes even more important even when users remain anonymous or pseudonymous.
There is also the concept of ownership in web 3 ie. direct ownership, not through third parties (not your keys, not your crypto). The ability to create, purchase and move an avatar/digital object within a metaverse or carry progress from one game to another are examples of ownership and portability in Web 3.
Are organizations prepared to accept these types of decisions? How does integrating SSI into digital identity regulations such as eIDAS increase adoption?
A number of governments have led or intend to lead initiatives to actively promote the use of SSI, including the European Commission, the governments of the United States, Canada and Australia.
A new regulation like eIDAS v2 is critical to the success of SSI for two main reasons. First, with supranational regulators like the EU providing regulatory frameworks for providers to comply with, such as the Credential Verification Guide and the Wallet Compliance Scheme, customers and businesses can see the data ownership paradigm shift and companies will begin to either replicate their existing business models in this new paradigm or explore new, previously impossible, opportunities.
Second, the regulatory certainty that SSI will be a viable way to exchange data with legal action is a huge factor for businesses adopting the technology, as it legitimizes the technical mechanisms used by the SSI community. This will help drive adoption by taking the risk factor out of enterprise decision-making and pushing them to understand how they build.
Avast’s acquisition of our partner and investor Evernym shows the extent to which large businesses will increasingly embrace the paradigm. Salesforce is expanding into verifiable credential management with its recent acquisition of Credential Master. Twitter’s moves to launch Bluesky, their effort at a decentralized social network, while developing a decentralized identity created Web5 with TBD, both demonstrating showbiz’s commitment to embracing the solution.
Sometimes controlling someone’s data can sound intimidating. How do we educate users about the needs and benefits of such solutions?
cheqd will never control or have access to users’ data. What we’re building is to empower data owners to fully control their data. So we believe it will be an empowering experience for them.
As decentralized identity is a fairly new paradigm, educating end users, whether they are individuals, businesses or public bodies, is vital. Together with our partners, we develop a lot of educational content to show how easy it is to use a solution like ours, including fun and interactive demos.
We expect tools to enter the market that will provide relief to users. Users will have direct control over their data, but can set policies that decide where it is shared. This could be sharing fake names and proxy email addresses when signing up for public wifi, but sharing real data when interacting with a bank.
What trends can you personally observe in the digital identity space for 2023?
The adoption of SSI by governments and the industry as a whole, including the financial services sector, and the constant push for a cheaper, more efficient way to issue, verify and prove credentials are other big trends for 2023.
We are also seeing a massive trend towards decentralized reputation, where there is no need for central authorities to regulate or approve the issuing or acceptance of credentials, where trust can be built between people, organizations and others based on social proof and interactions, in the same way people are built relationships forever.
About Fraser Edwards
CEO and co-founder of cheqd
Fraser has a rare skill set, blending technology and business acumen. He has deep knowledge of consortium and self-sovereign identity by leading the expertise of Known Traveler Digital Identity and blockchain payments through cross-blockchain payments architecture on the Jasper-Ubin project with the Bank of Singapore and the Bank of Canada.
About cheqd
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