For many people today, a life lived offline can hardly be imagined, but the internet still has many limitations. Access to information and easy communications have become the standard and basis for functioning of the society and the economy—and, it follows, a subject of interest to the law. Nonetheless, we more and more often sense the shortcomings of the current version of the digital world. These include digital exchange of value and universal electronic identification.

This doesn’t mean we are not witnesses to dynamic growth in online payments and more and more highly evolved systems of electronic identification. What I mean is that currently available technologies could more fully digitalise these areas. One such technology is blockchain.

Why blockchain?

The process of migration of traditional media to cyberspace, which is still underway, has made us aware that cyberspace offers much greater possibilities. After all, news sites aren’t just a newspaper in electronic form, and a television set is not just an old version of YouTube. The growth of technology and the digital world have made possible entirely new methods of human interaction, as symbolised by social media.

We will observe the same logic at work in the case of the development of digital systems for exchange of value and electronic identification. Currently both of these fields are being expanded by replicating existing analogue solutions in the digital environment. In practice this means for example digitalising payments traditionally made through a bank, or constructing systems of electronic identification where the role of a passport with a state seal is replaced by issuance of electronic means of identification tied to a digital certificate, also issued by a state.

This is also because, due to technical limitations, so far it has been difficult for us to expand the perspective familiar to us from the analogue world. Attempts at this may be seen in the area of exchange of value for example in equity crowdfunding and peer-to-peer lending, and in the area of electronic authentication using social media profiles (e.g. authorisation standards and solutions such as OAuth).

There are many signs that blockchain and solutions inspired by it may trigger a revolution in both of these areas. This is due in large measure to the ability to eliminate intermediaries playing a major role in the current systems for both exchange of value (banks, stock exchanges, etc) and electronic identification (where there is usually a specific entity that is the organiser of the system and guarantor of the accuracy of the means of electronic identification issued by the system). Below I will focus on the area of electronic identification.

Distributed system of electronic identification

The market may currently be focused mostly on ICOs and tokens (which I wrote about here), but we should be aware that there are also many other interesting applications of the blockchain technology. Electronic identification is an example.

There are many projects underway striving to create digital identity on blockchain. Some of the more interesting ones include uPort and Procivis, while others are being developed by big companies like Accenture and Microsoft.

The proposed ERC-725 standard has become perhaps the most interesting project, seeking to create a general standard of digital identity on the Ethereum blockchain based on smart contracts that could be used to identify people (but not only people) through the assertion of claims about a given entity.

Electronic identification systems of this type exploit a general feature of good solutions on blockchains: they are both distributed and secure, as witnessed for example in the autonomy vested in each entity to decide what information about the entity’s identity to reveal, and to whom.

Changes in eID regulations

Interestingly, the intensive growth in electronic identification systems, including those created using blockchain technology, is running up against an entirely new legal framework. I have in mind mainly the EU’s eIDAS Regulation (910/2014). So far it has been associated primarily with trust services (such as electronic signatures), but the second pillar of the regulation is electronic identification.

It is hard to see how solutions based on blockchain will fit into the new regulations. As with many applications of this technology, due to the distributed nature of blockchain and the absence of central intermediaries, application of these provisions may generate practical problems. For example, the planned regulations in Poland use the notion of “the entity responsible for an electronic identification system,” which may be hard to determine precisely in the case of blockchain solutions.

Thus we may anticipate the development of blockchain-based solutions on a kind of parallel track—as is indeed already happening in the case of payments, as mentioned above, and many other areas. Will blockchain and other open, decentralised solutions join the mainstream or replace it? We shall see.

Jacek Czarnecki