Block Believes That Digital Payments Needs a Decentralized Identity Layer

Digital Payments Innovation Requires Decentralized Identity Layer

As the world moves forward, digital identity is becoming a crucial cornerstone of tomorrow’s innovations.

This is truer than ever when it comes to the importance of open-source adoption in shaping the future of decentralized credentials, digital wallet naming and open payment standards.

“When people hear the world decentralized, they assume blockchain and crypto, which is an unfortunate valence … the reality is the internet itself is built on decentralized protocols,” Mike Brock, CEO of TBD, a business from Block focused on open-source decentralized technologies, told PYMNTS.

“And when we talk about decentralized identity, what we are really talking about is having a native identity layer for the internet today,” Brock said. “Through the lens of competitiveness, when you think about building a new service today you are under a lot of pressure to create an onboarding flow that allows you to sign in with Google, with Apple, with Facebook … and this means that those platforms are intermediating your customer relationships.”

When businesses depend on these platforms for user authentication, they create a market advantage for the tech giants.

Decentralized identity seeks to change this paradigm, Brock explained. It aims to provide a foundational technology that allows platforms, wallet providers, identity vendors, governments and authoritative issuers to create secure digital identities that can be used across various digital use cases.

“We never really thought about, what does it mean to identify a person on the internet in a way that is portable and doesn’t require you to rely on a single private platform,” Brock said.

The Need for More Secure, Efficient and Inclusive Digital Payments

One of the primary drivers behind the adoption of decentralized identity is the need for secure, regulatory-compliant transactions in a similarly decentralized payments ecosystem.

In this context, digital identity becomes crucial for verifying the identity of individuals and enabling trust between peers, reducing fraud and ensuring compliance with financial regulations.

“If we are going to have an internet of value where we can take advantage of tokenized assets, then we need a way for people to identify themselves,” Brock explained.

Brock pointed out that without a robust identity layer, decentralized payments might face counterparty risk, where the customer is at risk of losing money without receiving the service or product they paid for.

“I don’t think you can make the layperson care about decentralized identity any more than you can make them care about things like DNS or the HTP protocol that fuels the web,” he said. “Decentralized identity is a core technology that is meant to provide a common technical foundation.”

He noted that the Department of Homeland Security has a pilot program for using “this very technology” for issuing digital green cards and potentially digital credentials for airports.

Promoting Open-Source Standards

To realize the vision of decentralized identity, credentials and open payment standards, it is crucial to promote open-source adoption, and Brock explained that TBD’s approach is to focus on institutional use cases initially, particularly in remittance corridors where there is a significant demand for lower-cost remittances.

By capturing institutional activity, they can establish the foundation for expanding into retail and consumer use cases in the future.

“There is actually a lot more traction with this technology than a lot of people might expect,” Brock said. “The consumer technology will just hide the complexity … it is no different than the fact that the esoteric protocols supporting things like Apple Pay are hidden from the average consumer.”

“This isn’t about teaching people something new, it is about creating the ability to make more pleasant experiences,” he added.

That’s why, Brock explained, TBD and Circle Internet Financial (Circle) have announced a new initiative focused on accelerating open-source adoption of decentralized identity, credentials, digital wallet naming and open payment standards.

“We are keen on stablecoins,” he said. “We think it’s a potentially groundbreaking way to do digital dollar payments and the movement of value on the internet. And in order to do that, we need identity. Nothing is really practicable without a strong way to do identity … you have to know who people are, and you have to know who you can trust. All the roads in are around digital identity.”

“It’s not surprising that without a strong identity layer, many of the risks around decentralized payments just can’t be managed,” Brock added. “This is a real standard being pushed by some of the biggest software companies in the world, and it has nothing to do with crypto or anything like that, even though we intend to use it for some of those use cases.”

The journey toward accelerating open-source adoption of decentralized identity, credentials, digital wallet naming and open payment standards is well underway — and with the active involvement of various stakeholders, including governments, institutions and the open-source community, the future of a decentralized digital ecosystem looks promising.