Rules shaping decentralized identity solutions

Decentralized identity solutions may fundamentally reshape how consumers and businesses carry out transactions. While these products are still relatively nascent, their providers have had to keep an eye out for regulatory developments that affect how they’re engineered and distributed.

Data storage

Data storage requirements profoundly shape how decentralized identity systems are structured and operate. In particular, frameworks like the European Union’s GDPR restrict the tracking and deployment of core personal data that could otherwise be used to authenticate users across platforms.

As such, these solutions have to incorporate a diverse set of identifiers to verify users in a way that respects local compliance standards without compromising the reliability of the platform. Blending online activity, geolocation, two-factor authentication, and biometrics can ensure a more robust and resilient system.

Cross-border use

These products are on the rise at the same time that cross-border payment and financing solutions are scaling. The injection of decentralized solutions could help quicken onboarding and approval flows, while mitigating fraudulent activity.

However, providers will have to work with authorities to determine how fraudulent activity is tracked and remediated. In particular, issues arising during cross-border payments flows may require the introduction of arbitration or regional authorities to the equation.

The blockchain’s fate

How the public and regulatory authorities react to the proliferation of blockchain-based technologies may affect how decentralized identity solutions are built and packaged. Regulators haven’t issued blanket anti-blockchain regulations, but the technology’s proximity to cryptocurrency, which contends with wavering public and political support, may complicate its use in sensitive financial contexts.