Digital Identity - an essential element for modern digital trade

18 September 2023

BY ERIC DRURY, Digital Identity & Trust Advisor

Digital identity begets digital trust, and so is poised to play an increasingly significant role in shaping digital trade.

Just a few decades ago the internet ushered in an age of global connectivity, making it possible for all corners of the globe to connect and conduct business online. Today, a quarter of global trade, and more than half of all services trade worldwide can be considered digital trade.

But while the global economy has greatly benefited from this ultra-connected world, it has also brought enormous, and increasing risks to businesses and their customers in the form of data breaches, ransomware, phishing, identity theft and a whole assortment of scams, swindles and schemes.

Indeed, if we were to talk about all of the costs and opportunities brought by digital trade, we’d have to include the trillion-dollar cybercrime industry, where 43% of attacks target small and medium businesses at a cost of approximately USD 7 billion per year in the U.S. alone (2021).

It is widely accepted that digital identity, or rather, the lack of it, is at the “very root of most cybercrime.”

A powerful way to help mitigate the escalating risks associated with doing business online and ensure the continued positive trajectory of digital trade is to adopt digital identity.

From a digital trade perspective, digital identity starts with the organization.

In a broad sense this means establishing a verified - and verifiable - identifier for an organization, with which it holds itself publicly accountable as a ‘good actor’ in the digital markets, and legally accountable via its binding digital signatures. With digital organizational identity in place, we set the stage for more trustworthy integration in the digital economy, allowing parties to transact with greater confidence.

Organizations like GLEIF are leading the way in laying the foundation for global, digital, verifiable organizational identity, adding a layer of governance, trust, and security to online digital trade transactions between legal entities. And the World Economic Forum imagines digital organizational identity as GTID - Global Trade Identity - whereby supply chain partners can ‘dynamically validate the trustworthiness of a legal entity with which it is about to engage in a business interaction’.

Of course, organizations are created and run by people, and representatives of those organizations can also have digital identities, with delegated authority to act on behalf of the organization. This is a valuable tool for online user verification, which helps maintain the integrity of online marketplaces and can stymie bad actors looking to create fake or multi-accounts, post fake listings, scam buyers, hawk counterfeit products or phish for personal information.

For an illustration of the potential damage of online marketplace fraud, see the recent Bloomberg investigation that revealed faked certification documents and bogus parts for jet engine repairs that made their way into Airbus and Boeing Co. planes. Fake business and employee profiles on LinkedIn were key to skirting one of the most highly regulated industries in the world.

This story of bogus airplane parts highlights the importance of digital identifiers for things.

When things - from airplane parts, to weather sensors, gemstones, images, cameras and devices of all kinds - have unique, verifiable identifiers, we are able to piece together a clearer picture of supply chains, thereby powering traceability, sustainability and compliance initiatives.

As goods, services and finance flow through the supply chain, so too does information. And when that information is packaged as a verifiable credential - a digital certificate cryptographically signed by a trusted issuer (person, organization, or thing) - we bind accountability to the information that is shared between transacting parties.

Verifiable credentials are a great example of the transitive trust that digital identity fosters, as they enable verifiable information to flow from supplier to financier, buyers to sellers, and sellers to auditors, regulators and end consumers.

Initiatives such as the EU Digital Product Passport, and the Product Circularity Datasheet are using unique and persistent digital identifiers for products in order to collect information about those products and their supply chain, with the objective of helping customers better assess the environmental impact of the products they use.

The United Nations Centre for Trade Facilitation and Electronic Business White Paper, ‘eDATA Verifiable Credentials for Cross Border Trade’, highlights how verifiable credentials can be used to increase identity confidence and document integrity, thereby enabling algorithmic due-diligence for improved profitability of low value transactions.

The expectation is that these emerging digital identity and digital trust technologies will power solutions to facilitate cross-border digital trade by providing a standardized and recognized way to verify identities and data across different countries and jurisdictions, while helping businesses comply more easily with the regulatory requirements (AML, KYB, KYC) essential for financial and e-commerce platforms engaging in digital trade.

ASEAN has recognised the magnitude of the opportunities afforded by seamless cross-border digital trade, launching negotiations on the Asean Digital Economy Framework Agreement (Defa) and hoping to double the regional digital economy from US$1 trillion to US$2 trillion by 2030.

And of course the European Union has made a commitment to increasing the efficiency and security of digital trade with eIDAS, the electronic identification and trust services regulation, which enables cross-border recognition of electronic identification methods, allowing holders of national eID to access digital services and sign contracts in any EU country.

And various initiatives, including Trade Trust, are looking to facilitate trade, finance, and logistics flows using verifiable digital identity and credentials standards.

Perhaps the most exciting aspect of these digital identity and digital trust technologies is that they are being built with open standards and protocols, prioritizing interoperability without compromising  security or competitiveness.

As these technologies are easily accessible to all parties in the digital trade ecosystems - businesses, regulators, governments, individuals, and organizations of all types - the market has begun to swell with innovation, adoption and new business and public-private partnership models.

It is truly exciting to see increased implementation of digital identity and digital trust protocols that are enabling businesses to connect digitally and build more intelligently, sustainably, and efficiently, and in a verifiable, i.e. more trustworthy, manner.

As we increase adoption of strong digital identity solutions and governance frameworks, we pave the way for the next iteration of trusted digital trade to evolve, unlocking the value currently hidden in the creases of disparate business systems and networks around the world.