Digital wallets – shaping the future of identity and business in Europe
Digital identity has been a concern since the dawn of the internet. Everyone wants to know that the person or organisation they are dealing with is genuine and is who they say claim to be. As people live more of their lives in a virtual world, the need for robust digital identity becomes critical. Closely associated with the need for digital identity is the recognition that individuals should have sole ownership of their personal data and be empowered to control it.
With the upsurge of AI, data rights become paramount as data is the fuel that powers the new technology. Data rights are already enshrined in law, such as GDPR in Europe and similar laws in global locations. However, there is growing concern that many current ID and credential verification processes are slow, expensive and inadequate. A new approach is essential to keep pace with the ever expanding data economy and to stay ahead of fraudsters and bad actors.
Goodbye passwords, hello wallets
The European Digital Identity Framework that came into force in May 2024 promises to transform digital identity by enabling the creation of a universal, trustworthy, and secure digital identity wallet. As part of the eIDAS initiative and regulation by 2026, each member state must provide at least one wallet to all its citizens, residents and businesses allowing them to prove who they are in a digital world. But digital wallets go much further by empowering people to take control of their personal data, to store and share important digital documents and electronically sign or seal documents. In practice, EU digital identity wallets offer many benefits, including:
- Improved user control – citizens can choose which aspects of their identity and data to share with third parties, tightening control over personal information
- Universal acceptance – wallets offer a user-friendly interface for people to manage their identity across a range of companies, institutions and other services
- Enhanced fraud prevention – by providing a secure and verifiable means of identity, fraud levels are reduced, and people are more confident to participate fully in the digital world
- Reduced cost of authentication – by streamlining, simplifying and automating verification processes.
- Increased innovation – greater adoption of online services will create new business opportunities and boost economic growth
This list of benefits is not exhaustive, but it does confirm the direction of travel. So how do digital wallets work?
Personal data wallets – a model blockchain application
At the heart of digital identity wallets is the notion of self-sovereign identity (SSI), a decentralised identity model that is rapidly replacing the federated model used by Google, Facebook and many other incumbent identity providers.
As a decentralised identity framework, every user receives signed credentials from a range of trusted providers, for example a government department, employer or financial institutions and these are stored in the digital wallet. The user can present proof of identity to any organisation that requests it, and these proofs are verified on the blockchain-based ledger.
With an SSI solution, personal information does not reside on the ledger but within a wallet managed by the user. In this way users have total control over their digital identity and personal data. A user is free to choose what personal information is shared with which parties, when and how. An SSI solution addresses several privacy and security challenges associated with traditional identity systems, where personal information is stored in a centralised database vulnerable to theft and misuse.
GFT has designed and developed a solution, the GFT Personal Wallet (PDW), that combines SSI with the power of blockchain, crypto tokens and smart contracts to provide a number of innovative solutions in the area of digital identity. With these modern technologies, data can be securely managed, controlled and shared, for improving existing services or enabling new ones, ensuring the compliance with GDPR requirements by design.
The GFT proposal introduces three main innovations in the value chain:
Decentralised authentication. Based on identity wallets, decentralized identifiers and verifiable credentials, can be easily integrated with most of the current authentication systems and enables a single digital identity of the users among different business entities
Automatic & decentralised services. Based on smart contracts, are distributed, interconnected and secured applications implementing pre-defined agreements signed by companies or people through their wallet. They ensure state-of-the-art security and anonymised interactions, while the distributed ledger maintains an immutable audit trail in real time
Data sharing and monetization. Personal data can be easily, securely and transparently shared with the explicit consent of the users.
People will be rewarded for sharing their data and companies can monetize digital identity data certified by the user.
The number of use cases for Digital Identity is only limited by the imagination.. Obvious examples include opening a bank account, applying for a mortgage. But there are many more commercial applications, particularly where there are multiple parties involved. If we consider the case of extended loyalty programs where multiple companies – often across different sectors – share loyalty scheme members, an SSI solution manages all aspect of membership and the blockchain manages loyalty tokens to deliver an extendable, secure solution that can be flexible enough to meet the needs of the program.
A cornerstone of digital transformation
Despite the exponential rise of digital services there are many legitimate concerns about identity theft and fraud, which inhibit innovation and uptake of new services. According to research by the McKinsey Global Institute, extending full digital ID coverage could unlock economic value equivalent to 3 to 13 percent of GDP in 2030.
GFT has worked with distributed ledger technology since its inception and has delivered many successful projects for clients across different sectors. We believe that the time is right for commercial organisations and public institutions to realise the benefits of digital identity wallets that will benefit everyone and drive innovation. And with the clock ticking on the 2026 deadline, those who have not started should begin soon.
