#228—The internet’s missing layer

Scott Galloway and Charles Hoskinson on digital identity

Oct 17, 2022

Welcome to Yaka Stuff, our weekly newsletter that covers news, industry perspectives, and updates from the Hard Yaka ecosystem. Check out last week’s report here.

This week:

Scott Galloway on the internet’s missing layer
Charles Hoskinson on regulated DeFi

1. Scott Galloway on the internet’s missing layer

Every person needs a digital identity, and every company is a digital identity company. That’s because trust is the bedrock of a well functioning society. It’s also a requirement for democracy.

So having some form of identity verification emerged out of practicality. Here’s Scott Galloway:

Binding ourselves to the administrative state sounds ominous — “Your papers please” — but verified identity is a cornerstone of modern life. In the two centuries since Louis XVI inadvertently created himself a photo ID, we have institutionalized identification. In 1803, Napoleon introduced internal ID cards for workers, which reduced the levels of trust needed to transact and employ, unleashing economic growth. Other nations followed suit. In World War II, fear of saboteurs and spies spurred heightened ID requirements. The rise of the administrative state in the years after rendered persistent identification essential. Today, driver’s licenses, passports, social security numbers, email addresses, and a hundred other pins and flags of personal identifiable information tag us like endangered species in a reserve.
Nearly 90% of the world’s population has some form of official identification, and we couldn’t function without it. Keeping dangerous drivers away from our highways, psychopaths off our airplanes, and 14-year-olds out of our bars makes us safer and lubricates economic growth. Nobody likes paying taxes, but automation makes it (reasonably) fair and efficient. When we moved to London this year, I rented our house in Miami to a family I never met. And it didn’t occur to me to do so … because the infrastructure of banks and agents and bureaucrats knew both our identities, and they’ll track either party down if we don’t live up to our end of the bargain.

But, as Scott Galloway points out, that’s not how the internet started. Missing an identity layer, the internet reinvented anonymity. We’re now living with the consequences of that core necessity:

In its early days, the Internet seemed like a haven for reinvention and anonymity. However, unchecked anonymity online is not working. The prevalence of anonymous accounts and bots has evolved into a sociopolitical scourge. It has threatened the integrity of our elections, divided our nation, and — as Jonathan Haidt put it — systematically made us more stupid. We should change course and require proof of identity online. Enforced ID won’t solve all these problems, but it would be a step in the right direction.

This has been further exacerbated with the rise of crypto. By solving the Byzantine Generals problem, crypto essentially enables trust where there isn’t any. You don’t need to trust each other. Instead, you trust the mechanics and incentives of the system. You trust the code.

That’s all fine and well, but the problem is that we’re human, and humans are flawed.:

KYC isn’t perfect, as we learn every few years with another document dump detailing how the rich and powerful use shell companies and lax jurisdictions to hide their wealth. But the complexity of those schemes is testimony to the robustness of the system they seek to circumvent. Just compare traditional banking with the “anonymous” crypto version, so-called DeFi, which suffers from a massive fraud problem: Over $12 billion was stolen in 2021 alone. The success of KYC proves we can build secure systems to confirm that a real live human is attached to every online identity, and to provide recourse if that human breaks the law.

The solution, then, is obvious. It’s long past time to build that missing identity layer:

Platforms could employ KYC directly, requiring ID for every new signup, and limiting the number of accounts each person can control. But not everyone wants to have to trust Meta with their personal information, because the company’s data security team is about as reliable as Man U’s back four. (Sorry, had to.) Social media’s untrustworthiness is a business opportunity, however. The solution to confirming online identity is a profitable layer/middleman in waiting. Users could set up a single identity account with a trusted provider, who’d then vouch for the uniqueness of that user with any social media company or other online business where they open an account. Sort of a Clear for platforms.

And whether or not Galloway realizes it, what he’s describing is the emerging self-sovereign identity movement and developments around verifiable credentials. You don’t want to trust Meta, but more importantly, you don’t have to when you own your own portable, digital identity.

Relevant:

2. Charles Hoskinson on regulated DeFi

Ethereum co-founder and Cardano creator Charles Hoskinson inadvertently continued this thread, speaking at DC Fintech Week and hinting at the internet’s missing link:

Years ago, I invited Vint Cerf to a conference that I put on. He was one of the creators of the internet. I asked him a single question. He spent over an hour trying to answer the question. I said, if you could do the internet differently, if you got a do-over, what would you do differently.
He opined for a long time, but the thing is, you don’t get a do-over with these types of technologies, and what makes them special and magical is working with the scarcity. The design space is set. Whatever the law is, we receive it. Once it’s been decided, it’s been decided.
Then, the question is: How do you optimize around the facts of life? How do you optimize around that reality? Elections have consequences.
The good news is that we, as an industry, have invented a lot of really cool technology that I think we can have our cake and eat it, too.

Where’s Hoskinson going with this? Regulated DeFi:

You probably are going to see a term next year: Regulated DeFi. It’s this idea where you have something that's decentralized but it involves using DIDs [decentralized identifiers] and other things to do compliance so that DEXs [decentralized exchanges] don’t get captured and banned. You’re probably going to see legal rappers for DAOs [decentralized autonomous organizations] that give some agency to some managerial group, but allow people to vote to participate without liability and so forth.
You are probably going to see all kinds of new confidentiality technologies that get invented. And what they do is allow you to have selective disclosures and in some cases, involuntary disclosures, but still preserve overall transactional privacy for the type of system.
So that age of compromise is going to force quite a bit of innovation and quite a bit of work, but actually it’ll move the industry to the next level. And that’s what’s going to get us from a trillion dollar industry to a $10 trillion industry. That’s what’s going to get us from where we’re at to where we’d like to be.

Relevant:

3. Ecosystem updates: Smarter credentials edition

Congrats to StandardC:

Today, StandardC is announcing it has secured $4.75MM to support increased demand for the company’s software platform that creates and maintains data-rich digital identities to simplify customer onboarding and maintain ongoing compliance for businesses and banks. With this news, the company is also launching the StandardC Monitoring Center to automate Know Your Customer and vendor intelligence functions for financial institutions, enterprise-scale customers, and any customers interacting with highly regulated, compliance-intensive customers or vendors.
“Our investment from innovators, like Hard Yaka, is instrumental in our mission to shift power back to individuals and small companies,” said Robert Mann, co-founder, and CEO of StandardC. “The StandardC Credential is based on self-reported business data, enhanced by both public and private data streams, that enable simplified access to a wide range of critical business services.”

Yaka Stuff

#228—The internet’s missing layer

Scott Galloway and Charles Hoskinson on digital identity

1. Scott Galloway on the internet’s missing layer

2. Charles Hoskinson on regulated DeFi

3. Ecosystem updates: Smarter credentials edition

4. Stuff happens

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