South Korea plans to deploy a blockchain-based digital identity system by 2024 as it aims to stimulate its economy. The world’s most tech-savvy economy believes that this shift from resident registration cards to blockchain IDs powered by smartphones will help grow the economy by 3% within the next eight years. This is a bold step, as many world governments are carefully threading the path of blockchain adoption with more focus on the risk assessments of the technology. 

Under the new plan, the government will not be able to access information stored on an individual’s mobile phone, including details about whose digital ID is used and how and where it is used, as the system will rely entirely on a decentralized “host entity.” Citizens can use their digital IDs for money transfers, state benefits, and vote casting. According to the Digital Govt Bureau, Korea could gain $42 billion within a decade, representing 3% of the country’s current GDP.

It is interesting to note that South Korea already offers a blockchain-based driver’s license to its population of 45 million people, which operates on the government’s PASS smartphone application, and was in use by more than one million people as of August 2020. The Korea Internet & Security Agency (KISA), a government body, also began pilot-testing its digital ID in September 2020. Perhaps, the success of this endeavor is what informs their decision to pivot to a digital ID system completely.

Proponents say digital identity verification can significantly cut administration costs for governments and businesses and create new markets. Suh Bo Ram, Director-General of South Korea’s digital-government bureau, which is leading the program, said the digital IDs would allow government departments to go fully online. “Every service that hasn’t been able to transition online fully will now be able to do so,” Suh said, according to a Bloomberg report.

As one would expect, the news has been received with much fanfare by crypto communities as they advocate for more adoptions of the technology that ushered in the world of cryptocurrencies. 

What Are Digital Identities?

Digital identities are online or networked identities owned within a virtual environment by an individual, organization, or electronic device that may or may not represent something in the real world. Any institution or government that issues digital identities should have an efficient issuing and verification system to detect forgery, ease re-issuance, and enable interoperability within and outside its boundaries.

Digital IDs simplify verification on the web, removing the need to photograph certificates or log in via authentication codes sent by text. Instead, activities like applying for state benefits, transferring money, or even casting a vote are just a pin or fingerprint away.

The World Bank calls digital IDs a “game-changer,” McKinsey & Co. sees their potential to increase a nation’s gross domestic output by up to 13% and cut business costs by trillions of dollars. McKinsey’s estimate is based on the wide take-up of digital IDs, saving time in administrative work, reducing payroll fraud, expanding consumer credit, facilitating trade, and spawning new markets.

Before South Korea, some countries already administered digital IDs. Estonia, Finland, Denmark, and Iceland currently utilize digital IDs as a primary means of verification. However, South Korea will be the first to use the blockchain for this purpose.

Benefits of Digital Identities

Increased Security

Digital IDs offer immense benefits as it helps create more resilient fraud-proof systems. The risk of impersonation and identity forgery will greatly reduce since paper-based identity systems are relatively easier to forge. The government can better oversee a Digital ID issuing process, which optimizes validation and verification procedures.

Also, businesses, especially the ones operating within healthcare, consumer goods, and supply chain sectors, can better authenticate their products for customers to easily verify them before buying. This minimizes counterfeiting – potentially saving lives and indirectly improving revenue for these businesses.

Increased Interoperability

A government-issued digital ID will be able to interoperate across all institutions, bodies, and systems within the country. Individuals can use their digital ID to facilitate online medical services, approve contracts, register bank accounts, obtain certifications, verify payments, etc. 

Reduced Costs

With increased security and interoperability, business costs are greatly reduced as efficiency is improved and barriers mitigated.

Costs and Risks of Digital Identities

Switching Costs

Citizens of South Korea will have to travel to a town office and pay a fee to renew their registration card, which becomes registered on their mobile phones. The population will bear these costs, which might discourage them from actively participating in the country’s transition. Also, since only tech-savvy citizens with smartphones can be onboarded, this transition might not go as easily as expected. 

If the government predicts a complete adoption of this tech by its people, it will have to commit spending on mass education and smartphone subsidies within the country. Fortunately, Koreans’ zeal for early adoption may help too. According to the Portulans Institute, a Washington-based think tank, South Korea currently ranks No. 1 in the world when it comes to the enthusiasm and ability to apply tech in everyday life, businesses and government. This stat should bring about some relief.

Single Point of Failure

Although the government claims it will run the system in a decentralized manner, this is not expected to be the case. The government will most certainly control how IDs are issued and managed and how data is collected. That poses a single point of failure as a successful attack on the host blockchain or the ID-issuing protocol will compromise all citizens’ data on the network.

Big Brother Concerns

Critics have also highlighted that with digital IDs, the government could track almost all the activities of its citizens, and data on an individual’s activity can be harvested and used against them.

Having examined the prospects of digital IDs in South Korea, it would be interesting to see how the future unfolds. Assuming South Korea pulls this off successfully, it is safe to say that many other countries will follow suit and launch their Blockchain-based Digital Identities.

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