Who buys Bitcoin for Identity?
Former Vice President and Principal Analyst
Constellation Research
Steve Wilson is former VP and Principal Analyst at Constellation Research, leading the business theme Digital Safety and Privacy. His coverage includes digital identity, data protection, data privacy, cryptography, and trust. His advisory services to CIOs, CISOs, CPOs and IT architects include identity product strategy, security practice benchmarking, Privacy by Design (PbD), privacy engineering and Privacy [or Data Protection] Impact Assessments (PIA, DPIA).
Coverage Areas:
- Identity management, frameworks & governance- Digital identity technologies- Privacy by Design
- Big Data; “Big Privacy”- Identity & privacy innovation
Previous experience:
Wilson has worked in ICT innovation, research, development and analysis for over 25 years. With double…...
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You'll have to forgive the deliberate inaccuracy in the title, but I just couldn't resist the wordplay. The topic of this blog is the use of the blockchain for identity, and not exactly Bitcoin, which I appreciate is not the same thing. By my facetiousness and by my analysis, you'll see I don't yet take the identity use case seriously.
In 2009, Bitcoin was launched. A paper was self-published by a person or persons going by the nom de plume Satoshi Nakamoto, called "Bitcoin: A Peer-to-Peer Electronic Cash System" and soon after an open source software base appeared at http://www.bitcoin.org. Bitcoin offered a novel solution to the core problem in electronic cash: how to prevent double spending without reverting to a central authority. Nakamoto's conception is strongly anti-authoritarian, almost anarchic, with an absolute rejection of fiat currency, reserve banks and other central institutions. Bicoin and its kin aim to change the world, and by loosening the monopolies in traditional finance, they may well do that.
Separate to that, the core cryptographic technology in Bitcoin is novel, and so surprising, it's almost magical. Add to that spell the promises of "security" and "anonymity", and we have a powerful mix that some people see stretching far beyond mere money, and into identity. So is that a reasonable step?
Bitcoin’s secret sauce
A decentralised digital currency scheme requires some sort of community-wide agreement about when someone spends a virtual coin, so she cannot spend it again. Bitcoin’s trick is to register every single transaction on one public tamper-proof ledger called the blockchain, which is refreshed in such a way that the whole community in effect votes on the order in which transactions are added or, equivalently, the time when each coin is spent.
No proof of identity or KYC check is needed to register a Bitcoin account; currency – denominated "BTC" – may be transferred freely to any other account. Hence Bitcoin may be called anonymous, although the unique account identifiers are set in stone, providing a indelible money trail that has been the undoing of many criminal Bitcoin users.
The continuous arbitration of blockchain entries is done by a peer-to-peer network of servers that race each other to double-check a special hash value for the latest refreshed chain. The particular server that wins each race is rewarded for its effort with some Bitcoin. The ongoing background computation that keeps a network like this honest is referred to technically as "Proof of Work" and since there is a monetary reward for helping run the BTC network, the servers are colloquially called miners.
Whether or not Bitcoin lasts as a form of electronic cash, there is a groundswell of enthusiasm for the blockchain as a new type of decentralized public ledger technology (DLT) for a much broader range of transactions, including “identity”. The shudder quotes are deliberate on my part, reflecting that the blockchain-for-identity speculations have not been clear about what part of the identity puzzle they might solve.
For identity applications, the reality of Bitcoin mining creates some particular challenges which I will return to. But first let’s look at the positive influence of Bitcoin and then review some of its cryptographic building blocks.
Bitcoin inspirations
Bitcoin solves what was thought to be an unsolvable problem - double spending of electronic cash. It's the latest example of a wondrous pattern in applied maths. Unsolvable problems are, in fact, solved quite often, after which frenetic periods of innovation can follow. The first surprise or prototype solution is typically inefficient but it can inspire fresh thinking and lead to more polished methods.
One of the greatest examples is Merkle’s Puzzles, a theoretical method invented by Ralph Merkle in 1974 for establishing a shared secret number between two parties who need only exchange public pieces of data. This was the holy grail for cryptography, for it meant that a secret key could be set up without having to carry the secret from one correspondent to the other (after all, if you can securely transfer a key across a long distance, you can do the same with your secret message and thus avoid the hassle of encryption altogether). Without going into detail, Merkle’s solution could not be used in the real world, but it solved what was thought to be an unsolvable problem. In quick succession, practical algorithms followed from Diffie & Hellman, and Rivest, Shamir & Adleman (the names behind “RSA”) and thus was born public key cryptography.
Bitcoin has spurred dozens of new digital currencies, with different approaches to ledgers and arbitration, and different ambitions too (including Ripple, Ethereum, Litecoin, Dogecoin, and Colored Coins). They all promise to break the monopoly that banks have on payments, radically cut costs and settlement delays, and make electronic money more accessible to the unbanked of the world. These are what we might call liquidity advantages of digital currencies. These objectives (plus the more political promises of ending fiat currency and rendering electronic cash transactions anonymous or untraceable) are certainly all important but they are not my concern in this blog.
Bitcoin's public sauce
Before looking at identity, let's review some of the security features of the blockchain. We will see that safekeeping of each account holder's private keys is paramount - as it is with all Internet payments systems and PKIs.
While the blockchain is novel, many elements of Bitcoin come from standard public key cryptography and will be familiar to anyone in security. What's called a Bitcoin "address" (the identifier of someone you will send currency to) is actually a public key. To send any Bitcoin money from your own address, you use the matching private key to sign a data object, which is sent into the network to be processed and ultimately added to the blockchain.
The only authoritative record of anyone's Bitcoin balance is held on the blockchain. Account holders typically operate a wallet application which shows their balance and lets them spend it, but, counter-intuitively, the wallet holds no money. All it does is control a private key (and provide a user experience of the definitive blockchain). The only way you have to spend your balance (that is, transfer part of it to another account address) is to use your private key. What follows from this is an unforgiving reality of Bitcoin: your private key is everything. If a private key is lost or destroyed, then the balance associated with that key is frozen forever and cannot be spent. And thus there has been a string of notorious mishaps where computers or disk drives holding Bitcoin wallets have been lost, together with millions of dollars of value they controlled. Furthermore, numerous pieces of malware have - predictably - been developed to steal Bitcoin private keys from regular storage devices (and law enforcement agencies have intercepted suspects' private keys in the battle against criminal use of Bitcoin).
You would expect the importance of Bitcoin private key storage to have been obvious from the start, to ward off malware and destruction, and to allow for reliable backup. But it was surprisingly late in the piece that "hardware wallets" emerged, the best known of which is probably now the Trezor, released in 2013. The use of hardware security modules for private key management in soft wallets or hybrid wallets has been notably ad hoc. It appears crypto currency proponents pay more attention to the algorithms and the theory than to practical cryptographic engineering.
Identifying with the blockchain
The enthusiasm for crypto currency innovation has proven infectious, and many commentators have promoted the blockchain in particular as something special for identity management. A number of start-ups are "providing" identity on the blockchain - including OneName, and ShoCard - although on closer inspection what this usually means is nothing more than reserving a unique blockchain identifier with a self-claimed pseudonym.
Prominent financial services blogger Chris Skinner says "the blockchain will radically alter our futures" and envisages an Internet of Things where your appliances are "recorded [on the blockchain] as being yours using your digital identity token (probably a biometric or something similar)". And the government of Honduras has announced that American Bitcoin technology firm Factom will build a blockchain-based land title registry, which they claim will be "immutable", resistant to insider fraud, and extensible to "more secure mortgages, contracts, and mineral rights". Interestingly, the Factom-Honduras project stalled for the second half of 2015. I find it emblematic of the whole blockchain craze that one of the most popular use cases for decentralized ledger technology is little more than a press release.
While blockchain aficionados have been quick to make a leap to identity, the opposite is not the case. The identerati haven't had much to say about blockchain at all. Ping Identity CTO Patrick Harding mentioned it in his keynote address at the 2015 Cloud Identity Summit, and got a meek response from the audience when he asked who knew what blockchain is (I was there). Harding's suggestions were modest, exploratory and cautious. And only now has blockchain figured prominently in the twice-yearly freeform Internet Identity Workshop unconference in Silicon Valley. I'm afraid it's telling that all the initial enthusiasm for blockchain "solving" identity has come from non identity professionals.
What identity management problem would be solved by using the blockchain?
The most prominent challenges in digital identity include the following:
- account creation including validation of identity or other attributes
- the cost and inconvenience of multiple account registrations
- the inconvenience and insecurity of multiple usernames and passwords
- identity theft and account takeover
- interoperability of identity data or attributes between services and applications
- provenance of attributes.
What does the blockchain have to offer?
Certainly, pseudonymity is important in some settings, but is rare in economically important personal business, and in any case is not unique to the blockchain. The secure recording of transactions is very important, but that’s well-solved by regular digital signatures (which remain cryptographically verifiable essentially for all time, given the digital certificate chain). Most important identity transactions are pretty private, so recording them all in a single public register instead of separate business-specific databases is not an obvious thing to do.
The special thing about the blockchain and the proof-of-work is that they prevent double-spending. I’ve yet to see a blockchain-for-identity proposal that explains what the equivalent “double identify” problem really is and how it needs solving. And if there is such a thing, the price to fix it is to record all identity transactions in public forever.
The central user action in all blockchain applications is to “send” something to another address on the blockchain. This action is precisely a digital (asymmetric cryptographic) signature, essentially the same as any conventional digital signature, created by hashing a data object and encrypting it with one’s private key. The integrity and permanence of the action comes from the signature itself; it is immaterial where the signature is stored.
What the blockchain does is prevent a user from performing the same action more than once, by using the network to arbitrate the order in which digital signatures are created. In regular identity matters, this objective simply doesn’t arise. The primitive actions in authentication are to leave one’s unique identifying mark (or signature) on a persistent transaction, or to present one’s identity in real time to a service. Apart from peer-to-peer arbitration of order, the blockchain is just a public ledger - and a rather slow one at that. Many accounts of blockchain uses beyond payments simply speak of its inviolability or perpetuity. In truth, any old system of digitally signed database entries is reasonably inviolable. Tamper resistance and integrity come from the digital signatures, not the blockchain. And as mentioned, the blockchain itself doesn't provide any assurance of who really did what - for that we need separate safeguards on users' private keys, plus reliable registration of users and their relevant attributes (which incidentally cannot be done without some authority, unless self-attestation is good enough).
In addition to not offering much advantage in identity management, there are at least two practical downsides to recording non Bitcoin activity on the blockchain, both related to the proof-of-work. The peer-to-peer resolution of the order of transactions takes time. With Bitcoin, the delay is 10 minutes; that’s the time taken for an agreed new version of the blockchain to be distilled after each transaction. Clearly, in real time access control use cases, when you need to know who someone is right away, such delay is unacceptable. The other issue is cost. Proof-of-work, as the name is meant to imply, consumes real resources, and elicits a real reward.
So for arbitrary identity transactions, what is the economics for using the blockchain? Who would pay, who would be paid, and what market forces would price identity, in this utopia where all accounts are equal?
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