Building the Future: The Rise of Identity Corp in Decentralized Autonomous Corporations

In the initial two segments of this series, we discussed how the fundamental operations of a decentralized autonomous corporation could be envisioned, along with the types of hurdles it might encounter to function effectively. Nonetheless, one query remains unanswered: what could such corporations be advantageous for? Bitcoin developer Jeff Garzik once proposed that one use case could be a kind of decentralized storage service, where users are able to store their files on a robust peer-to-peer network that would have incentives to keep those files securely backed up. Beyond this specific instance, what other uses could exist? In which sectors might decentralized corporations not merely serve as a gimmick, but instead demonstrate their value on their own and contribute real benefits to society?

It can be argued that there are three primary categories where this scenario holds true. First, we have the natural monopolies. For specific types of services, it simply does not make sense to have numerous competing alternatives all functioning simultaneously; software protocols, languages, and to some degree social networks and currencies all fit this model. However, if the suppliers of these services are not kept in check by a competitive landscape, the question arises: who regulates them? Who guarantees that they charge a reasonable market price for their services, rather than imposing monopoly prices that are excessively inflated compared to the actual production cost? A decentralized corporation could theoretically be structured to ensure that no participant in the price-setting process possesses such an incentive. More broadly, decentralized corporations can be engineered to be immune to corruption in ways that are unimaginable in systems controlled by humans, although extreme caution would certainly be necessary to avoid introducing other vulnerabilities; Bitcoin itself serves as a prime illustration of this.

Secondly, there are services that contravene governmental laws and regulations; the usage of decentralized file-sharing networks for copyright infringements, and to a significantly lesser degree the application of Bitcoin on platforms like Silk Road, serve as both examples. As Satoshi Nakamoto expressed, “Governments are proficient at dismantling centrally controlled networks like Napster, but pure P2P networks like Gnutella and Tor appear to be sustaining themselves.” Finally, there are instances where a decentralized network can simply operate more efficiently and deliver superior services than any centralized counterpart; the peer-to-peer framework utilized by Blizzard to disseminate updates for its massively multiplayer online game World of Warcraft stands out as one of the clearest examples.

The remainder of this article will elaborate on one specific concept for a decentralized corporation that could potentially unlock a variety of new opportunities within cryptocurrency, crafting structures that possess vastly different characteristics from the cryptocurrencies we observe today while still aligning with the core cryptocurrency ideals. The fundamental premise is as follows: Identity Corp, an organization dedicated solely to generating cryptographically secure identity documents for individuals that they could use to sign messages, which would be connected to individuals’ physical identities.

What’s The Purpose?

Initially, the notion of creating yet another method to track individuals’ identities appears absurd. Here we stand, having detached ourselves from the constraints of state-backed fiat currency and its burdensome anti-money-laundering identity verification requirements, stepping into the semi-anonymous realm of Bitcoin, and I propose we reintroduce identity verification? Yet, the dilemma between “nymity” and anonymity is not nearly as straightforward. Even individuals facing the threat of life imprisonment, such as Silk Road founder Dread Pirate Roberts, tend to maintain some form of identity – in this case, the identity being “Dread Pirate Roberts” itself. Why does he (or possibly she, which may remain a mystery) do this? The explanation is straightforward: he is also managing a multimillion-dollar business – specifically, the online anonymous marketplace Silk Road, and he must assure customers that he can be trusted. Legal and even semi-legal enterprises frequently present themselves publicly, intentionally exposing themselves to both governmental prosecution and various levels of harassment from dissatisfied customers. Why undertake such risks? To demonstrate to the world that they possess an additional motivation to operate honestly. The “crypto” in cryptography originates from the Greek term for concealment, yet in practice, cryptography often focuses on confirming your identity just as much as it does on obscuring it.

However, the type of “identity” employed by Dread Pirate Roberts differs from the identity we are addressing here. The purpose of standard public key cryptographic identity is rather restricted: to affirm that two messages were produced (or at least signed) by the same entity. This definition might seem peculiar at first; typically, we perceive identities as delineating “who someone is.” In truth, however, similar to the principle of relativity in physics, within the domain of identity and reputation theory there exists no “preferred frame” for determining which set of observations of an individual constitutes that essential person, or if a person possesses multiple names which name qualifies as his or her “real name.” If I compose articles under the name “Vitalik Buterin”, yet contribute to internet discussions as “djargon135″, it is equally valid to assert “djargon135 is actually Vitalik Buterin” as it is to say “Vitalik Buterin is actually djargon135″; in either scenario, what is crucial is that one collection of messages attributed to djargon135, and another set associated with Vitalik Buterin, indeed share a common origin. Within this framework, a “real name” is differentiated from a “pseudonym” in precisely one respect: each individual can only possess one real name. In other words, while pseudonyms can serve to affirm that two messages were generated by the same entity, real names can additionally demonstrate that two messages were produced by two distinct entities.

Yet this still fails to address the query: why maintain real names at all? In fact, nearly all applications of a real name can be distilled to one central idea: the giveaway. We all recognize what a giveaway represents: perhaps a corporation aims to distribute a complimentary sample of a product to entice potential customers, perhaps a homeless shelter with limited means desires to provide everyone enough to survive and thus prevent individuals from taking excessive portions for themselves, or perhaps a governmental entity managing a welfare initiative aims to stop individuals from claiming welfare twice. The concept is straightforward: X units of a specific product, service, or commodity per individual, and if you seek additional portions you must acquire your second share through alternative means. One of the earlier uses of a “real name”, such as a business owner revealing his details to reassure customers that he is subject to law enforcement scrutiny, may not resemble a traditional giveaway, yet in fact that business owner is a recipient of a particularly unique type of giveaway within society: that of reputation. In an environment governed by public key reputation, an identity can be generated without cost, resulting in everyone commencing with zero reputation, creating initial challenges for business. In a real-name system,however, everyone starts out with one predetermined identity right away, and lacks any means to obtain more, rendering that identity “costly” and providing them with a limited amount of reputation at the outset. Instead of a complimentary sample for each individual, it’s one complimentary reputation per individual, but the underlying concept remains unchanged.

How To Execute It

Actually executing a system, of course, presents a challenge. Achieving this through a purely online mechanism is notably difficult as anyone can easily generate multiple identities and have them behave like distinct individuals. It is undoubtedly feasible to filter out some deceit by leveraging statistical analysis on the messages that everyone authenticates (e.g., if two separate identities consistently misspell “actually” as “actualy,” that offers strong evidence they may be connected); however, this can easily be circumvented by pairing a spellchecker with a program that intentionally inserts spelling mistakes and alters some syntactic structures. These strategies could potentially be corrected for, but ultimately depending exclusively or primarily on such methods is a formula for statistical warfare, not any form of stable identity system.

So what options remain? Offline systems. DNA-based identity is the most apparent, though facial, iris, and fingerprint scans can also be included. At present, government identity systems do not utilize this information extensively because governmental identity documents adhere to a centralized parent-child framework: to obtain a social insurance number, one must present their passport, if the passport is lost, one provides a birth certificate and potentially change-of-name certificates if relevant. Ultimately, everything generally hinges on a combination of the birth certificate and facial recognition by government agents overseeing the system. A decentralized approach to achieving this could employ both mechanisms, although many would argue that the theoretical ability to register without presenting any governmental documents is a significant advantage – it should be feasible to acquire an identity through the system without necessarily linking it to one’s government-issued “real name” (in the typical sense of the term, not my own differentiation as previously stated). Should this not be feasible, a kind of mixnet-style framework could be implemented to anonymize identities after they have been created while still upholding the one-per-person limit. However, attempts at deceit would likely occur with greater frequency; governments are unlikely, at least initially, to apply any legal mechanisms to enforce anti-fraud regulations with these identities as they do with their own documents.

From the preceding details, it is straightforward to envisage how one might establish a centralized entity to achieve this goal. The organization would maintain an office, individuals would visit, have their biometrics (face, fingerprint, iris, potentially DNA) assessed, and subsequently receive their new cryptographic passport. Why stop there? In this situation, the rationale is that the concept of a natural monopoly applies. Even though the system may involve various identity providers, they would all necessitate cross-verifying information to avert multiple registrations, and the resulting system would inevitably be the sole one of its nature.

If this framework is governed by a corporation, that corporation would be incentivized to begin imposing high fees once its product becomes pervasive and essential. If managed by a government, then the government would be motivated to link these identities to its own real names, and eliminate any privacy features (or at least create a backdoor for itself). Moreover, it might seek the power to revoke identities as a form of punishment, and if significant portions of the internet (and society in general) start depending on these mechanisms, it would become considerably harder to exist as a fugitive or dissident. Furthermore, another query arises: which government specifically would oversee the system? Even supposedly global entities like the United Nations are not universally trusted, often precisely because they make ideal targets for corruption among those attempting to secure any kind of worldwide control. Therefore, to prevent a corporation from corrupting the system for profit and a government from manipulating the system for its political interests, delegating authority to a decentralized network, if feasible, is arguably the most favorable course of action.

But how can this be achieved? Identity Corp can certainly evade the truly challenging issue of actively engaging with the external world because its role is information provision. However, gathering data about the world, including users’ biometric details, would still be quite demanding. There are no public APIs available for such information; the only recourse would be some human agent, or group of agents, to gather it. The communication channel between the humans and the network will be merely digital data, making it clear how these agents themselves could defraud the system: they could generate numerous distinct identities for fictitious individuals with fabricated data.

The sole solution appears to be, once again, decentralization and redundancy: numerous agents gathering the same information, and requiring individuals seeking an identity to validate it with several different agents, ideally randomly (or otherwise) selected by the system itself. These agents would all transmit messages to the network containing both biometric data and the identity that data is associated with, perhaps encrypted using cryptographic methods that allow two datasets to be verified for similarity without revealing any other information. If two distinct agents assign two biometric identities to the same data, the second identity can be dismissed. If someone attempts to register an identity using false biometric data, they would need to persuade a number of relevant organizations to somehow accept it. Ultimately, the system should also encompass a mechanism for detecting and rectifying fraud afterwards, potentially employing a form of specific-purpose decentralized “court.”

The second hurdle is determining precisely who these “agents” will be. The system should be capable of thwarting Sybil attacks (the technical term for an attacker masquerading as numerous entities to seize control of a network based on consensus), while also filtering out unreliable agents without that process itself being vulnerable to dishonest agents or Sybil attacks. Proof-of-work and proof-of-stake is insufficient; since we do not desire each individual to traverse the globe providing their biometric details to 51% of the network, in practice it could take as little as 10% or even 5% to perpetrate large-scale fraud. Therefore, it is quite likely that constructing a purely decentralized corporation to carry out this task will be unfeasible; rather, the optimal outcome may be a hybrid system that employs significant human support to maintain network equilibrium, while simultaneously leveraging the cryptographic features of the network to ensure the system remains true to its original mission. This would exist somewhere in between a legal contract or constitution and a bona fide decentralized network, but the difference is quite fluid; as LawrenceLessig is eager to emphasize, “code is law“.

SocialCoin and the One World “Governance”

The presence of a decentralized “real name” framework opens up a plethora of avenues that have yet to be explored in the realm of cryptocurrency. One appealing option is SocialCoin, a digital currency that allocates to every individual in the world a “global citizen’s dividend” of 1000 units each month; another comparable prospect is to integrate this system into a Devcoin-like model, enabling communities to unite and vote on the initiatives that funding should be directed towards, effectively forming what is, in essence, a (voluntary) “global governance” that finances itself through the revenue derived from producing new currency units. How much funding could such a governance obtain while still sustaining a minimal inflation rate? There are two important factors to consider: the mortality of individuals and the permanent loss of their coins, as well as actual inflation.

At present, when an individual passes away, their assets are automatically transferred to their heirs or spouse by default. Nonetheless, in the sphere of cryptocurrency, a person’s monetary assets become unattainable since their passwords are lost. This loss of coins exerts a deflationary influence; considering the current mortality rate of approximately 8 per 1000 annually, multiplying by a factor of 2 to adjust for the tendency of individuals to be wealthier than the average at the moment of their death, and subsequently dividing by 3 to factor in the reality that many people organize their affairs to ensure their wealth is allocated somewhere upon their death (currently, about half of the populace possesses wills, and the divisor can be increased to 3 as those with greater wealth are more likely to have them), we can estimate a coin loss of about 0.5% each year.

This, when combined with an objective inflation rate of 1.5%, implies that we can “produce” 2% of the existing monetary supply annually. As cryptocurrencies will significantly decrease the prevalence of fractional reserve banking globally (since the base unit of cryptocurrency is digital, individuals will no longer “need” to deposit their funds in banks to maintain savings accounts and conduct long-distance transactions), we can anticipate that much of the world’s M2 and M3 money supply (methods for calculating the money supply that include bank deposits) will transition into the foundational currency of a cryptocurrency. The M2 money supply globally is estimated to be approximately $40 trillion$, granting our global government an annual budget of

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