In many people’s minds, cryptocurrency started as a dream of decentralization; of an asset not subject to government manipulation or many of the negative regulations that exist to steer the market in specific directions. And, for better or worse, those dreams have to some extent been realized. Technology has caught up to the ambitions, but bad actors have repeatedly shown the ugly side to an unregulated marketplace.
As U.S. Congressman Bill Foster (D-IL) noted in comments to the Global Digital Asset & Cryptocurrency Association earlier this month, building these currencies was only the first step in the work to be done: building trust is the second, and potentially much more challenging, task. The need for a secure digital identity may be paramount to the future of digital currency.
“You can have the most rock-solid cryptographic guarantee of the blockchain, and it does nothing if fraudulent participants register under anonymous names,” Foster said.
It’s an issue that rears its head in a variety of cybercrimes online, and has stood as a primary obstacle that keeps traditional banking entities wary of the promise of blockchain.
The first step to fixing it, in the congressman’s eyes, is in building standards to physically authenticate traders in the marketplace.
“The essential government role is that once you go into your account, you have to be authenticated as a legally traceable person, and then de-duped to ensure your identity has not been stolen,” Foster said. “This empowers those really anonymous transactions – individual participants don’t need to know much about each other save if there’s a problem, in which case they can go to a trusted court who can unmask the participant on the other side. This is a technical requirement of digital contracts, and almost all use cases that are talked about are for this.”
Once such standards are established, there’s a lot of other value-added propositions that can be added into the mix: easier self-regulation, trusted digital asset trading, and a basic etiquette system for edge cases when trades go wrong.
“Once you have that trusted digital identity, you don’t need much else from government,” Foster said. “When things go wrong, you want to be able to go to a court you trust with proof you’re the person who put money into an investment and therefore empowering the court to reverse bad transactions.
“It’s really unavoidable. If people are going to tie up big parts of their net worth into crypto, they’re going to want the ability to go to a court system they trust. Say you’re going to buy a house; you want that backup. Say you have someone rob you for your crypto-assets—you want a legal process to get your assets back. There’s no way around it.”
In the absence of that sort of cryptographic contract, built-in from the front end, Foster predicts a system that will not be able to expand beyond low-value use cases – or worse, actively predatory ones.
“I went down to the border to look at cases with the immigrants,” Foster said. “I was told by one of the border guards there that most of the payments for people seeking ways to cross the border are made with bitcoin. That’s not an acceptable situation.
“Five to ten years ago, I was excited about the potential of a decentralized system, but the more you think of the use cases, the more it’s clear we have to have a mature attitude towards this. That doesn’t mean that there aren’t tremendous benefits to blockchain in our economy. Being able to authenticate goods and license fees through blockchain-backed digital guarantees and expanded transaction information is tremendously valuable.”
Ultimately, it won’t be work that any one country can manage individually; one of the simultaneous challenges and benefits to cryptocurrency is the ease with which it can cross borders. Managing that’s going to take international cooperation that has not, so far, materialized, but Foster is hopeful.
“There’s a bill in the House that has us join the rest of the world on this,” Foster said. “We should have transparency, not shell companies. We have to make a fence around other countries not willing to have the same level of transparency, after that.
“One of the things I’m hoping for after the end of the Trump administration is in getting very high-quality international loans and standards. To have an identity ecosystem so I that a Russian oligarch can’t operate these transactions in the US under a fake driver’s license.
“It’s going to take turning over some of what is normally done by an individual country and having it done collectively by the countries of the world, this is where we have to go. I hope the US can show leadership. The dangers of corruption coming in and wrecking our democracy are something we are not ready for as we’ve learned in the last several years.”