With websites operating under the constant threat of attacks, users have long been accustomed to looking for a little green lock in web browsers, signaling an SSL certificate, to ensure that the site is secure.
Today, SSL is used for transmitting sensitive information over the Internet, and it has long been a significant driver of e-commerce. Involved in this process are protocols including the Secure Sockets Layer (SSL) and Transport Layer Security (TLS), as well as certificate authorities (CAs), entities that issue digital certificates to organizations or individuals.
Now, digital identity startup Netki has announced that it is releasing what it considers to be the first digital identity certificate akin to the SSL for the blockchain in a bid to replicate both this technology and its top-lever services on the blockchain.
In interview, CEO and co-founder Justin Newton expanded on the vision for the product, which follows a wallet naming service it introduced last year.
“What we did is we took a look at the ecosystem and saw that everyone was doing a good job of doing KYC (know your customer) on their own customers, but blockchains in general don’t have a really great way of knowing who your counterparty is. That has some usability issues because you like to know who you’re transacting with.”
Newton pointed to the regulatory reasons why such a functionality could prove useful for those executing blockchain-based transactions. In particular, Newton cited FinCEN’s travel rule, which “requires all financial institutions to pass on certain information to the next financial institution, in certain funds transmittals involving more than one financial institution”.
Under the travel rule, the identities of all participants involved in digital currency transfers greater than $3,000, including the money service businesses (MSBs) such as wallet providers and exchanges and the actual sender and receiver of the funds, must be known.
Part of the problem is that MSBs have to worry about sending money to nations that are sanctioned under the auspices of the Office of Foreign Asset Control (OFAC). “They keep us from transacting with ISIS,” Newton explained.
Newton cautioned that many companies in the digital currency industry are potentially at risk of violating OFAC rules, which harms the ecosystem in two ways. The first is that current companies could deal with significant regulatory risk.
“It’s also preventing traditional financial institutions from being able to connect or interact with the open blockchain,” he argued.
Building on BIP70
On the bitcoin network today, a piece of code called BIP70 handles a similar function, allowing spenders to obtain signed payment details from those who receive transactions.
But, part of the problem is that BIP70 wasn’t built to support the rules required by FinCEN for these large transactions, Netki argues.
In a presentation at Consensus 2016, Newton explained that the existing payment flow, BIP70, only allows for a certificate from the wallet provider of the recipient to be sent. In the slide above, this means that when Alice sends Bob an invoice, that is the only time identity is exchanged.
To get around this problem, a team of developers, including Netki’s Newton and Matt David as well as Breadwallet’s Aaron Voisine and James MacWhyte, submitted an updated proposal called BIP75.
According to the Git, this solves two important problems. The first is that it allows the sender of a payment request to voluntarily sign the original request and provide a certificate to allow the payee to know who they are transacting with.
“This allows the exchange of identity information to be optionally two-way,” Newton explained, adding:
“Before a transaction occurs, the receiver can know who the sender is and the sender can know who the receiver is and their service provider can provide any required AML checks that they need to form before the transaction occurs.”
Essentially, both the sender and receiver of the payment request – and their corresponding MSBs – can voluntarily hand over the necessary identification to ensure that all parties involved are legally allowed to send and receive payment.
Newton explained that BIP75 is already implemented in Netki’s open-source software, Addressimo, and that he expects that implementation in wallet software to commence over the next few months.