The way we interact and do business is quickly shifting from the “real world” to the digital space. Commerce, banking, healthcare - nearly all of the professional interactions and transactions in which we engage can now be accomplished over the internet, and many people are choosing this option due to convenience. In fact, experts say that 92% of people are connected to the digital economy in some way. For example, 85% paid a bill online last year.
The Role of Micro-identities in the Digital Economy
As the economy continues to further embrace online methods of doing business, it’s understandable that consumers are worried about their privacy. Without face-to-face interaction, alternative methods of verifying a person’s identity become necessary. Every time a person engages in an online transaction, they are asked to give up information of some kind. Whether it’s a phone number, an email address, credit card information, or something else, we have to be willing to share multiple pieces of extremely personal information every time we participate in the digital economy.
In order to protect privacy and maintain customers’ trust, it's recommended that companies only ask for as much information as is necessary to provide their particular service. This picking and choosing of personal data facilitates the gradual formation of digital micro-identities, or individual groupings of personal information that each function differently for different purposes.
Maintaining these micro-identities, consisting of only the information that is absolutely essential to verify a person’s identity in each separate situation, means greater detachment between personal and professional identities.
The practice of online identification is still relatively novel, and we haven’t quite perfected it yet. Many companies are still asking for more information than is necessary to achieve the desired interaction between business and customer, especially regarding online payments.
Whether this overreach is intentional or simply because we are still figuring out how to effectively approach online identity verification, it leaves customers more vulnerable to identity theft than is necessary. As many as 55 percent of people are reportedly concerned about how their personal data is being used by companies.
Thus, developing a system that finds a middle ground between providing companies with all-inclusive access to identifying information and providing too little information to do business is of the utmost importance if e-commerce and the digital economy in general are going to continue to thrive. Micro-identities look like a step in the right direction.
The Cryptocurrency Case
Take cryptocurrency as an example of the increasingly complex relationship between online commerce and digital identity. Cryptocurrency is undoubtedly on the rise and quickly gaining momentum. According to PYMNTS, as many as 16 percent of Americans currently own cryptos, or have owned cryptos in the past. That’s roughly a 1000% increase over the course of the last five years.
As cryptocurrency skyrockets in popularity, so does the potential for related fraud: the first six months alone in 2021 has seen a 35 percent increase in crypto-related fraud attempts. Clearly, this is a case in which improvements to digital identity verification are critical. Some crypto companies are attempting to do this by requiring multiple instances of verification. For example, they might require identity verification each time a transaction is requested that could be considered high-risk.
Regulating Private Data
Streamlining this increased need for verification is a challenging prospect. Only a few years ago there was a much smaller number of commercial networks in use - but the rapid development of more and faster payment networks means that our separate digital identities are beginning to become interconnected. For example, we are now capable of moving money between different accounts and financial institutions with just a few clicks. The challenge, then, is how to maintain (and continue to improve) this convenience while also keeping the identifying information used to verify these transactions safe from fraud.
Part of the problem is that in most cases there is not yet any single regulation authority when it comes to issuing and verifying digital credentials. Taking steps toward effective real-time identity verification requires a collaboration between the companies performing the verification and the government responsible for issuing and maintaining records of official identification. By consolidating the effort towards e-commerce verification, each micro-identity can be limited as much as possible rather than spread out across multiple corporations and government bodies.
Further progress is being made toward reducing the need for customers to provide personal identifying information with the utilization behavioral analytics. Advancements in technology are nearing the point where it becomes feasible to identify a user based on their patterns of behavior in using the service. If abnormal behavior is detected by the company, they can then reach out to the user to verify that their identity has not been stolen and their information has not been compromised.
The ability to detect when it is necessary to verify a customer’s identity and only using their personal information in those scenarios allows customers to enjoy a greater sense of privacy while still providing assurance to the company that they really are who they say they are. The development of micro-identities further contributes to privacy in this arena by ensuring that even when verification is necessary, only the fragment of the person’s whole, real identity that is required in that specific case is accessed.
The Future of Personal Data
The bottom line is that our personal data is extremely valuable, and it has become critical to protect this personal data in a way that won't sacrifice the convenience of the digital economy, and e-commerce in particular. The concept of digital micro-identity is at the forefront of the development of improved methods of personal data protection.
Inevitably, as digital ecosystems continue to grow, the regulation of digital identities will become tighter and more intricate. As this shift happens, consumers want to maintain as much control as possible over the level of personal information they give up - and micro-identities are going to play an important role in managing that delicate balance.
