Why 20 Bitcoin Companies Are Backing a New Deal for Digital Identity

By October 21, 2014Bitcoin Entertainment
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Why 20 Bitcoin Companies Are Backing a New Deal for Digital Identity

Open Mustard Seed, ID3
Open Mustard Seed, ID3

To members of more than 20 digital currency companies, the broad increase in financial access the industry hopes to achieve is currently being impeded by issues that go beyond finance and technology to defining transparency and identity in the digital age.

Expanding access to financial services through not just digital currency, but new systems that allow businesses to establish trust and lower the cost of financial services, lies at the heart of the Windhover Principles. The new framework was introduced by the Institute for Data Driven Design (ID3), a non-profit founded out of MIT Media Lab this Monday, and was written collaboratively by digital currency industry stakeholders.

The Windhover Principles aim to reframe the debate around privacy, security and transparency. All entities that have pledged to the principles have vowed to support measures that will empower companies and consumers with the ability to better guard their financial information, while respecting the law enforcement need for anti-money laundering (AML) and know-your-customer (KYC) protections.

Though lofty, ID3 plans to work toward this goal more concretely through its Open Mustard Seed (OMS) software platform. The infrastructure will seek to allow Internet users to create a profile that can be verified and stored by a trusted third party and securely accessed by any financial company or regulator that should require it.

Ripple Labs chief compliance officer Karen Gifford, who helped author the framework, told CoinDesk that the wide support for the principles shows that the bitcoin community is beginning to galvanize around the subject of identity.

Gifford said:

"This type of technology has the potential to lower the cost of customer onboarding so that if you could create a digital identity tool that a person could use once to build up their identity and trustworthiness, we wouldn't have to keep doing that over and over again at great expense to everyone. It could lower the cost of customer onboarding and enable financial access to people who currently can't access financial services easily."

More than 20 industry participants have so far pledged the support to The Windhover Principles, including market leaders like BitPay, Bitstamp, Coinsetter and Ripple Labs.

From farm to theory

While newly announced, the underlying ideas behind the project have been in development for some time, according to ID3 co-founder Dan Harple.

Harple explained that ID3 co-founders Dr John Clippinger and Dr Alex "Sandy" Pentland have been working in the areas of big data, privacy and smart contracts for years, but that the Windhover Principles took shape at a post-conference retreat held by MIT Media Lab and ID3 this August at Windhover Farm in New Hampshire.

There, Harple indicated that startup CEOs and regulators came together to develop a big tent strategy to identity and trust, discussing ways that similar problems have been approached in the past through open-source frameworks. Drawing on his own background working on early projects that resulted in voice over Internet protocol (VoIP) standards, Harple proposed the Windhover Principles.

Now, ID3 is taking its proposals a step further, by uniting companies to put its ideas into action.

Harple said:

"What we have agreed to is for the companies to come together to provide an open-source solution that's totally in the spirit of bitcoin, and companies are signed onto this. What we've decided to do from ID3 is to contribute the foundational software."

Further, his type of open-source work, he said, provides a powerful value proposition to bitcoin companies, that may have to dedicate more substantial development resources to the problem independently.

Common ground between regulation and business

Bitcoin businesses, in turn, see the framework as an extension of the industry's ultimate goal of using the technology to extend financial access.

Jaron Lukasiewicz, CEO of New York-based, B2B-focused bitcoin exchange Coinsetter, suggested that the high costs of establishing and verifying identity is one of the core reasons existing financial products struggle to gain a foothold in emerging markets. For bitcoin to overcome this, he argued, new approaches to identity are necessary.

"You can look at compliance costs for opening a bank account," Lukasiewicz said. "The bank has to do all this work, and if you don't have a lot of money, spending that money as the bank doesn't make sense. What we're trying to achieve is a new paradigm in how regulation can be achieved for payment technologies that are going to be more fair and ethical."

Joseph Lee, CEO of bitcoin derivatives platform BTC.sx, suggested that by backing solutions that help users better control their data, the industry can also better meet its fiduciary duties to regulators while respecting individual rights.

"What the framework essentially [will do], is give the users the control of their own data while allowing other companies the ability to verify the data in a very clever way, in that they never have to own the data, but they can use it for regulatory purposes," Lee said.

Rejection of centralized alternatives

More broadly, the companies also seek to use their commitment to the framework to move away from centralized identity solutions in use today or that could be developed in the future.

Lukasiewicz likened the Windhover Principles as aspiring to create a decentralized version of services like Facebook Login, the social media service that allows apps and websites to easily access user data.

He said:

"People will get very sensitive about having to report their Social Security number to an exchange or give their passport, but you can imagine a future where you can enable the greater verification of an identity without ever having to give any sort of documentation to accompany it."

Still, Lee used a different analogy, suggesting that the industry would eventually develop a decentralized version of online payments identity validation services such as Jumio.

Action needed now

Overall, the companies associated with the project all suggested that there will be no immediate changes to their services as a result of their commitment to the Windhover Principles. Yet, they expressed that a commitment to the principles is needed today, while the technology that underlies the bitcoin ecosystem is still being developed.

Lukasiewicz suggested that the framework has implications within the context of New York's proposed bitcoin regulation, the BitLicense.

"I think you're looking at a point in the industry where regulation is being formed, where regulators are making decisions on how the industry will progress and this is a way for the industry to form that ourselves," he said.

Gifford struck a similar tone, noting that the Windhover Principles are a way for the bitcoin industry to show that they are responding to concerns from the government with action.

"[This is] an opportunity for the digital currency community be able to clarify that they understand a lot of the [...] important concerns underlying regulations," she said.

Gifford added that the project, if successful, could demonstrate how regulators and innovators can collaboratively address issues for the greater global good.

Images via ID3


Expanding access to financial services through not just digital currency, but new systems that allow businesses to establish trust and lower the cost of financial services, lies at the heart […]

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