Digital ID plans take shape as blockchain patents pile up

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The patent office is getting buried in applications for distributed ledger systems, a mountain of documents that chart a clear course toward making static identity and password protection irrelevant.

Bank of America is one of the most recent applicants, applying to patent a security system for a peer-to-peer network with a digital wallet interface that fuels a layered authentication system. The filing has fueled speculation the bank, which already has more than 80 blockchain patents, may be working on a digital wallet or a "crypto wallet" as Facebook Libra draws attention.

But the strongest language in the patent application — which BofA emphasizes is still just a concept — speaks to security, giving a roadmap toward using distributed ledgers such as blockchain to manage ID risk or modernize data management. Such an approach could help the payments industry migrate away from top-down data ownership.
Banks and payment companies are turning to distributed ledgers for everything from cross-border transactions to gaming payments, forcing a corresponding move to use the same technology to secure personal information. Traditional static ID does not fit in this model, nor does authentication that's overly reliant on proprietary systems.

"There is a reason why digital identity providers are choosing distributed ledgers, and that's privacy," said Krista Tedder, head of fraud management and cyber security research at Javelin Strategy & Research.

Many companies are pursuing blockchain to digitize identity protection. Examples include SecureKey, which has lined up bank and telco partners in Canada to build Verified.me, which draws from multiple databases to create an interoperable ID system. Gemalto and bank-supported blockchain consortium RS have partnered in a system that allows users to access financial, e-commerce and government services without requiring distinct due diligence in each case. And Mastercard is stringing together blockchain patents that combine payment processing, an auction model and a system to anonymize transaction amounts and origin.

Blockchain patents have grown dramatically in recent years, with an annual compound growth rate between 2013 and 2018 of more than 200%, according to ACS, a research firm. As of April 2019, there were more than 14,000 blockchain patents globally, according to IAM Media, citing data from Derwent, a patent services company.

In the financial services industry, Mastercard, JPMorgan Chase, PayPal, and Bank of America are just a handful of the companies filing for blockchain patents; Bank of America, IBM and Mastercard are among the top ten blockchain patent filers.

These patents are mostly concepts for potential payments technology. One of PayPal's applications would patent a system to move cryptocurrency payments faster, while one of Chase's filings is for technology that would underlay a bank-to-bank transfer system.

Blockchains are considered among the primary ways to modernize identity management. Regulations such as PSD2 and GDPR are spurring movements toward greater data sharing between banks and third parties in Europe and other parts of the world.

Combined with e-commerce and faster payment processing, there's more pressure on normally competitive companies to digitize credentials in a way that's similar to a digital version of a driver's license that can be used for different purposes, but with only the user knowing when and where.

BofA's version is a decentralized system with a tiered identity model, allowing authentication to be more flexible and usable in broad venues, but only for specific purposes.

"For both regulatory and customer requirement reasons, payment networks, banks and vendors are relying on permissioned blockchains because they want to provide the ability to provision, and deprovision, aspects of their identity in real-time," Tedder said. "It has more to do with giving customers increased control over their personal information, especially when they're sharing that personal information across an entire ecosystem of service providers."

There are multiple approaches to digitizing identity, which could complicate matters as competitive barriers work against the development of an interoperable system. Also, blockchain itself varies in its implementations, with different access based on whether the blockchain is permissioned or permissionless.

"The key here is to establish industry standards and best practices across banking institutions, and to make sure to involve the regulators," said Gabriel Wang, an analyst at Aite Group. "So from that aspect, BofA's application will help enable a modern system of authentication."

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Digital ID Authentication Blockchain Mobile payments Bank of America
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