Is the Self-Sovereign digital identity the future digital business registry?

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Centralized vs Decentralized Business Identifier
Centralized vs Decentralized Business Identifier. Source: Goran Vranic.

In this digital age of instant access to information and socially distant transactions, unique digital identity is a fundamental requirement. Otherwise, how can we be sure we are interacting with whom we mean to?  Unfortunately, we are far from where we need to be.

For businesses, legal identity is obtained through registration with a country’s business registration authority. In that process, the business is “born,” and ideally, it should be assigned a unique identifier and business name that is meant to facilitate its authentication and interaction with the government and other stakeholders. This information is collected into business registries.

We recently performed a random online search in the business registry of an EU member state for active companies named “ABACUS.” We found 22. This particular country assigns at least three different government-issued identifiers, resulting in 66 different identifiers circulating in various government and business transactions. We checked the registry of a neighboring country and found 17 more companies registered “ABACUS.” Are they the same company? Who knows for sure? 

These two countries aren’t unique. Governments around the world must address the confusion that results from having multiple disconnected databases and identifiers on registered businesses with little-to-no communication between countries. Emerging technologies offer solutions for making information more secure and streamlining interactions between business and government.


Decentralized Identifiers and Self-Sovereign Identity

A working group with the World Wide Web Consortium (W3C) is currently developing the Decentralized Identifiers (DIDs) standard. According to the W3C, a DID is a new type of identifier that enables verifiable and decentralized digital identities. A DID can refer to any subject, such as a person, organization, thing, data model, or abstract entity. In contrast to typical, federated identifiers, DIDs have been designed so that they may be decoupled from centralized registries, identity providers, and certificate authorities.  

The World Bank Group has supported the modernization and digitalization of business registries in many countries, resulting in a more streamlined registration process and compliance cost savings to the private sector. SMEs, restaurants, hairdressers, shops in Africa, and other regions proudly hang the nicely designed business registration certificates on their walls to prove they are formal. The COVID-19 crisis abruptly accelerated the need for SMEs to shift to digital ecosystems. They had to for survival.

This rapid digitalization of the private sector exposed a challenge in the business registration paradigm. To use private digital platforms for e-Logistics or e-Commerce, SMEs have to register and confirm their identity with these platforms, despite already being identified in the government business registry. That raised the question of how relevant traditional government business registries are in the digital economy and smart industry. It challenged whether the business registry should assign the alphanumeric business identifier or should the identifier be “digitalized” and created earlier when, for example, in case of certain entity types such as a sole proprietorship or single-member company a decision is made to start a business? Recent revelations in data privacy and cybersecurity are pushing towards decentralized identity solutions.

The Self-Sovereign Identity, which relies on blockchain or other decentralized network for verification, is emerging as a framework that could be the answer to unique identifiers for businesses , at least for simpler forms such as sole proprietors and single-member companies. Demonstrations of the new concept are underway. For example, the Kiva protocol initiative in Sierra Leone gives unbanked people digital identities and secure control over their credit information. Another example of Self-Sovereign identity implementation is the LACChain alliance, a group of organizations that are actively participating in the development of blockchain applications and its actual societal use.

These emerging needs and technological developments allow a shift in the way businesses are registered to one where a unique business identifier can be created earlier in the business life cycle.  Such a Self-Sovereign digital identifier would enable business registration to be digital by default, eliminating the need for physical presence and use of any paper documents, particularly for SMEs, such as sole proprietorships and single-member companies.   

We are certain that a shift towards decentralized business identifiers will happen, but it requires a new policy framework for business and company registries and governance models. This will open new opportunities, both for businesses and governments. For businesses, this will mean easier access to finance and integration with the digital economy platforms early in the business life cycle. For governments, this would be a solution to make the business registries digital, interoperable, and operating “at the same level” as digital and smart industry ecosystems. For customers and business partners, it will offer more reassurance we are interacting with exactly who we intend to.

Authors

Goran Vranic

Senior Private Sector Specialist

Andreja Marusic

Global Lead for Business Environment

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