3 ways to use digital identity systems in global supply chains

This article is brought to you thanks to the collaboration of The European Sting with the World Economic Forum. Author: Nadia Hewett, Project Lead, Blockchain and Distributed Ledger Technology, World Economic Forum & Andrew Ballinger, Temporary Project Specialist, Blockchain and Distributed Ledger Technology, World Economic Forum

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Supply chains span national borders, involving numerous organizations and transactions. For each business interaction, organizations need the ability to verify the identity of all potential partners. Is the potential partner who they say they are? Do they have the credentials they say they have? In an increasingly digital world, digital identities – unique representations of legal identities engaged in online transactions – and the trustworthy verification of these digital identities are critical.

Traditionally, this is based on a complicated system of registering and validating credentials, through processes including Know-Your-Customer (KYC) and the verification of certifications and licenses – and this process is repeated every time when transacting with a new partner. However, as supply chains become increasingly global and digital, these systems are proving costly, inefficient and potentially unsustainable.

“Today, most identity systems exist in isolation. Different public and private solutions record and maintain identical identity data potentially hundreds of times over, and are not interoperable, creating a significant amount of redundant identity information,” a new paper from the World Economic Forum states. “This is a waste of resources for the network in question, is difficult to scale and is buried in error prone and paper-heavy processes.” Decentralized identity systems, by way of blockchain and distributed ledger technology, holds a unique opportunity for global supply-chain organizations and governments to build digital identity systems that are prepared for future supply chains.

Currently, there are three archetypes for digital identity systems: centralized, federated, and decentralized. Here’s a breakdown of their fundamental structures, where they may be used – and how to choose between them:

Under centralized systems, businesses register separately with each service provider it wishes to interact with. For instance, if a business wanted to sell its goods on digital marketplaces, it would register separately with Amazon, Alibaba and others. Each time, the business would provide a set of credentials, and the marketplaces (considered service providers) would independently verify these credentials. In this instance, Amazon and Alibaba serve as the central intermediary that facilitates trust among otherwise unknown identities.

Federated identity solutions have emerged to reduce the burden of registering digital identities at each service provider. Under these systems, businesses register with domains that have, in turn, established trust with other providers. On the individual level, Facebook and Google accounts are perhaps the best-known examples. Instead of creating a separate account with each site you want to engage with, you can often sign in with one of these service providers. This is happening at the supply-chain level, where Port Community Systems (PCSs) are creating federations to trust one another. For example, if you are part of a “trusted” PCS, you would be able to receive information from global PCSs within the network. It’s important to note that most of these identity systems still rely on a central system to establish and maintain trust.

In a decentralized identity infrastructure, a business would be issued a digital identity that it could then use in all business interactions. The identity would have all relevant credentials attached to it – licenses, certifications, etc. – allowing the business to freely interact with all future potential business partners. This identity could be stored on a trusted, shared ledger – allowing organizations to trustworthily validate the credentials of a potential partner without having to go through a trusted intermediary.

An example is the Verifiable Organizations Network (VON), designed by the Canadian provinces of British Colombia and Ontario to enable a trusted digital environment for their businesses. Using the decentralized identity system Sovrin Network, it aims to furnish businesses with a trusted digital identity issued by their local government with which they can conduct their affairs globally. As per mid-March 2019, VON has issued more than 7 million verifiable credentials for Canadian companies.

A comparison of the system features can help you decide which archetype is appropriate. Due to their nascent nature, decentralized identity technologies are not yet ready for general use due to business, regulatory and technology challenges. However, organizations can already prepare and position themselves for future success when the technology is ready.

For more information on how digital identities may re-shape global supply chains, you can read the World Economic Forum’s recent report: Inclusive Deployment of Blockchain for Supply Chains Part 2 – Trustworthy verification of digital identities.