While India’s Aadhaar system of digital identity has been held up as an example of efficient modernisation and forward thinking, it has its dark side: as Quartz reports, data breaches.
Obviously, any information online is vulnerable to leaks and hacks. And when it comes to personal information, those come at a cost – even if there is no direct monetary loss, the focus on privacy and natural rights throws into question the “platformisation” of our daily lives. In democracies, this could well lead to a pedalling back of reforms, and a pervasive suspicion of technology in general, neither of which would be good for growth.
Privacy is something that needs to be debated, though, especially in this increasingly connected world. Over the past few decades, personal space has taken on a whole new meaning, as has crime. And our understanding of natural rights is developing, along with what could be perceived as infringements.
Rumblings of discontent over government interference were present in India even before Aadhaar rolled out. Recently they have been growing in volume, even taking the shape of lawsuits.
The official response to a particular challenge in 2012 was startling: there is no fundamental right to privacy under the Indian constitution.
This week, the Supreme Court overturned that statement, declaring that privacy is, indeed, a fundamental right.
The intensity of the questions will no doubt get kicked up a notch. What does that mean? What are the implications for digital identity? Can we safely combine privacy and connectivity?
Unpacking this case, we uncover many other fundamental issues: the impact on humanity of the relentless march of technology; the separation of the courts and the government; the cost we are willing to bear for improved efficiency… And that’s just scratching the surface.
A deeper consequence, perhaps the most important of all, is that the development of Aadhaar in India has shed light on how little we comprehend about fundamental concepts, and how the big picture gets lost in the scoreboard of goals achieved.
Hopefully the matters under consideration will awaken deep debate, and get renowned thinkers from all fields involved in the conversation. The whole world should listen, and join in, for we all stand to benefit.
With this, we can hopefully move towards a deeper understanding of what privacy actually means.
An issue is currently being debated in India’s courts that could affect the development of blockchain-based identity programs worldwide.
I’m talking about the Aadhaar platform, which is leaving a trail of takeaways for others to learn from.
Given the proliferation of startups and official institutions looking at the problem of self-sovereign, immutable digital identities, a look at Aadhaar’s successes and obstacles could help with the design of lofty goals and sweeping implementation.
In 2010, the Indian government issued the first Aadhaar identity number, a unique rendering of personal data, with the aim of documenting all of India on a digital platform using biometric identifiers.
That in itself is staggering – how do you coordinate the inscription of 1.3bn people, including the scanning of fingerprints and irises for each individual?
The first main takeaway is that it is possible. In just over 6 years, approximately 1.15bn people have been issued Aadhaar numbers, including almost 100% of the over-18 population. That’s more than the entire populations of the US, Europe, Australia and South Korea combined.
True, it took a massive rollout of administrators and digital readers, but the Unique Identification Authority of India (UIDAI) showed that it could be done. At its peak, over 1 million people were being processed each day.
Second, certain rules need to be set out from the beginning. Is the program mandatory or optional? If mandatory, how will enforcement be carried out? If optional, how will the old and new systems cohabitate?
The Aadhaar program is optional. But a recent amendment to the Income Tax act stipulated that an Aadhaar number was required to file a return – which pretty much makes it mandatory. Last week the Supreme Court upheld this law, but also ruled that those without an Aadhaar number should still be able to pay taxes, until the broader privacy issues can be decided by the Constitutional bench. On the one hand, good news (for now) for privacy activists and for citizens who don’t (for whatever reason) have a card. On the other, an administrative mess for the government, which could have been mitigated with clearer parameters at the outset.
Also, one of the main incentives for the government is the opportunity to streamline administration and reduce “leakage”, the amount of aid paid to “false” identities. However, there is still some confusion as to whether or not an Aadhaar number is a requisite for government aid. Several official agencies seem to think that it is, but the Supreme Court has ruled that it isn’t.
Furthermore, while the first cards were introduced in 2010, legislation backing the project (the Aadhaar Act and the Aadhaar Regulations) did not pass until 2016, and is often criticized as being unclear.
Third, the privacy issue will always be a problem, however great the efficiencies. Concerns have been raised about the lack of clear regulation on the process of sharing identity information, as well as the lack of redress and appeal if you feel your data has been mishandled.
The Aadhaar Act mentioned above authorises any official at the level of District Judge or higher to access an individual’s identity information, excluding the biometric data – that limitation doesn’t apply to officials with rank of Joint Secretary or higher. Given India’s reputation as the “most corrupt country in Asia”, this raises some concerns.
And while the government understandably wants to standardize administration, some groups are raising the alarm over the volume of data on each individual the government would have in its power, the capacity for tracking and the spectre of mass surveillance.
The fourth lesson, a surprising one, is that biometrics are complicated. It turns out that not everyone has fingerprints that lend themselves to being scanned. Apart from the very young, manual labourers often have worn hands due to repeated handling of rough objects. One area in north Delhi reported a 10% fail rate when reading fingerprints.
The same goes for eyes – the elderly often have degraded irises, so getting a clear reading can be challenging.
Fifth, even with biometrics, falsifications will emerge. In some cases, inscription agencies took advantage of a rule that said that biometrics were not always required (if fingerprints or irises were not clear, for instance), In others, hackers were able to bypass the scanning requirements.
Sixth, census statistics are unreliable, which makes it more difficult to plan and implement projects that affect populations. The Aadhaar web page shows what percentage of the population are inscribed, by province. In Delhi, that reaches almost 120%. It turns out that the population figures are “estimates”.
Seventh, “inclusion” is elusive but possible. While bringing undocumented citizens “into” the system was touted as one of the main goals – millions of people don’t even have a birth certificate due to an inefficient registry system – apparently almost all of those who enrolled in Aadhaar already had an official ID.
So, what about those without? Over 200,000 undocumented citizens took advantage of the “introducer” option, in which someone with an Aadhaar number vouches for someone with no official identification.
And, it’s worth noting that the Aadhaar number does not substitute a government-issued ID, so it cannot be used for cross-border travel, for instance. However, Aadhaar holders without any other ID can now get mobile phones and open bank accounts, something that they couldn’t do before.
Takeaway number eight is that any broad platform needs to be designed for growth. Even after the successful rollout and the years of experience with the system, experts admit that they don’t know what else the platform will be adapted for, or what other functionalities will be built on top. However, Aadhaar has been designed to allow other private and public applications, and already innovations and apps are emerging from the ecosystem.
The hope is that Aadhaar will become a “universal id”, in that it grants the holder access to a wide range of services. Also, it aims to reduce onboarding expenses for businesses such as mobile operators, landlords, employers and even banks, allowing them to bypass most of the cumbersome KYC requirements by using information already in the system.
The last lesson is to question the technology. Aadhaar is not a blockchain solution. That in itself calls into question the need to use the blockchain for national identity. If the verification of the data needs to be centralized, and if transparency is not a fundamental feature, then a distributed database could suffice.
True, the idea of identity being centralized in the hands of the government may be disquieting to many. But for a digital version to be useful on a national or pan-national scale, it needs to be accepted by the jurisdictions in question. What will incentivize governments to cede control over the fundamental role of granting citizenship?
The Aadhaar project is encouraging in that it is leading the way in showing what can be done today. Blockchain technology, however, allows us to contemplate other forms of identity, new uses for that information, and evolving roles for government. It is inviting us to think about what could be done tomorrow.
“Bitcoin will not be a significant player in the remittance industry.”
At the Money 20/20 conference last month, the Executive VP of Business Development at MoneyGram dismissed bitcoin as a possible remittance solution, alleging that “you can send money to a phone, but these people need cash”. It is somewhat perplexing that someone so involved in moving money has not realized that mobile money can be converted to cash relatively easily, using any existing extensive network of mobile money agents. And that it is precisely the spread of convenient mobile money services that is relaxing the dependence on cash, as more merchants and suppliers are happy to accept the digital equivalent. It is even more perplexing that MoneyGram does not seem to have realized that the move towards mobile is one of the main factors behind the fall in MoneyGram’s market value to almost half its value of three years ago, and the net loss of $72 million in the first quarter of this year. Someone should give them a Kodak camera.
Market statistics aside, though, the Executive VP may have a point, at least in the short-term. Bitcoin has been hailed as the revolution of cross-border payments, whose cost savings will lift entire regions out of poverty. Unfortunately, it doesn’t work like that. For now.
Remittances – money sent home by foreign workers – is a complicated issue. Too many middlemen eat away at the sometimes already meagre amounts sent. Currency controls delay delivery. But most difficult is the “last mile”, the physical problems of actually receiving the money. In the most common remittance destinations (India, China and the Phillipines), a significant portion of adults do not have a bank account, so they depend on exchange offices. In rural areas, exchange offices are not plentiful, competition is scarce, the fees are high and the security is low.
Enter bitcoin. Finally, money can be sent to anywhere in the world, to anyone with a computer or a mobile phone, almost instantaneously and with almost no fees. All the sender needs to do is to convert some of his or her wages into bitcoins, and with a couple of swipes and taps send it to another bitcoin address, which could be anywhere. Within a few minutes, the receiver has the bitcoins in his or her wallet. And here we come up against the problem.
Well, actually, two problems. The first is that to set up a wallet, you usually have to confirm your identity to comply with the local anti-money laundering laws, and to do this you need to upload a photograph of yourself next to your ID. Easy if you have access to a computer or a smartphone. Not everyone does.
The other, bigger, problem is that most money exchangers in typical remittance destinations do not accept bitcoin. It isn’t hard to switch your bitcoins into a more “acceptable” currency on an exchange, but relatively few exchanges operate beyond the trinity of dollars, euros and yuan. Even if the local money exchanger does accept a non-local fiat currency, there may be barriers to accepting it from an entity they are not familiar with.
Liquidity could be an issue. For an exchange to work efficiently, both sides of the trade need to be fairly liquid. There needs to be enough holders of Ghanaian cedis who want bitcoins, for example, and enough bitcoin holders who want Ghanaian cedis for the trade to go through at the recent market price. Trading bitcoins in and out of the major currencies is not a problem. Beyond that, bitcoin is just not that liquid.
But let’s say that everything has gone smoothly and the receiver has the bitcoin-converted-into-fiat mobile money in his or her digital wallet. What then? Finding an agent to convert that into cash is usually possible although with varying degrees of convenience. In Kenya, for example, M-Pesa agents are ubiquitous, as even rural areas depend on the mobile money system. Other countries don’t have that kind of opportunity or infrastructure. And the scarcity of agents allows them to charge whatever fees they wish. Often the most convenient option is to use the expensive MoneyGram or Western Union facility. Western Union and Money Gram have a combined 50% or more of the remittance market of almost 80% of sub-Saharan countries, and in some, their market share goes up to 90%.
And bitcoin-based remittances have significant competition from other innovators. Payment startups have brought remittance costs down for those willing to seek them out, to a level that in many cases competes with the bitcoin solution. In Kenya, for example, bitcoin remittance startup BitPesa charges a 3% transaction fee. Equity Direct, a payment platform that does not run on the blockchain, operated by Kenya’s Equity Bank and money changer VFX, charges 3.4%.
In some cases, the structural barriers to converting your bitcoins into a local currency are prohibitive. Bitcoin is banned in several remittance-heavy countries, such as Bangladesh, Russia, Ecuador, Bolivia and Thailand.
In others, regulation is clamping down amidst increasing concern about terrorist financing and money laundering. Money transfer businesses have to tighten their account requirements, report any suspicious movement and install a more rigorous screening process, the costs of which will obviously be borne by the users. The off-ramping gets more complicated as well: to avoid red-tape and possible fines, some banks are refusing to handle remittances of any type.
The biggest barrier of all, though, is habit. Even with all the remittance innovation and the more efficient and economic choices that senders have at their disposal, only 2% of remittances are sent via mobile. In part this is due to poor interoperability of mobile providers, and the cumbersome identity proof regulations. Innovators have their work cut out for them to overcome these barriers, and to convince long-term users that the cost saving is worth the effort of overcoming the innate resistance to change.
The potential for bitcoin to make a big impact in the developing world is still there. In theory bitcoin is ideal for the “unbanked” in that it gives users control over their financial transactions with minimal cost. An estimated 80% of rural people receiving remittances do not have access to traditional banking services. In sub-Saharan Africa, more than 70% of adults do not have access to a bank account. In the developing world, the average is 46%. In five sub-Saharan African countries – Cote d’Ivoire, Somalia, Tanzania, Uganda, and Zimbabwe – more adults have only a mobile money account than have an account at a financial institution.
In countries with political unrest and volatile currencies, bitcoin makes even more sense. While the value of local currencies depends on relative growth prospects, the financial health of the government and faith in ruling stability, the value of bitcoin is above all those things. The value of bitcoin fluctuates, true, but its worth is determined almost exclusively by market forces. No-one can unilaterally devalue bitcoin, no-one can ban it outright, no-one can dictate what it’s used for. Bitcoin is a self-determined alternative store of value, whose worth is protected by cryptography.
As with all innovation, the idea is “essential but not sufficient”. The secret to success is in the implementation. Bitcoin’s use is growing and spreading, and its benefits are still being explored. The potential it holds to put economic power in the hands of the hitherto disenfranchised is real, and exciting. But making that happen is something else altogether. The shift required in regulation, infrastructure and habit is profound, but it is starting. And as bitcoin use spreads, the change will gather speed and the economic benefits will become apparent. That should be enough motivation for the current startups to keep on trying, and for others to fill the service and technology gaps that impede the progress. Bitcoin may not be ideal for remittances now. But in one form or another, it will be.