Our Thesis

Thesis

Digital Trust Ventures (DTV) is a Silicon Slopes (Utah) based venture studio dedicated to helping found and fund startups implementing self-sovereign identity (SSI) technologies globally, using the industry-leading technical and business SSI expertise and guidance of Dr. Samuel Smith and Timothy Ruff. DTV is now building a portfolio of startups that will support launching a angel-to-seed stage venture fund dedicated to SSI investment.

 

Predictions

Self-sovereign and transitive trust technologies will impact the world as much over the next 20 years as the internet did over the last 20.

Self-sovereign technologies will:

  • Become ubiquitous6-SSIPNG
  • Make trust transitive across the internet and between silos and even competitors, bringing powerful network-of-network effects
  • Bring trust to the internet of things and all digital interactions, enabling new business models not previously possible
  • Enable user sovereignty and portability between platforms, opening and growing both new and existing markets
  • Bring breakthroughs in customer and user experience
  • Put primary control of digital life and relationships into the hands of individuals, where it belongs
  • Re-decentralize the internet.

Fraud and breaches will decrease, privacy increase, and frictionless customer experience will become expected. SSI-powered Zero Trust Architecture will become the de facto security best practice for all things digital. Identity and financial inclusion will extend to everyone.

The tech titans of the future are forming now, but not grow as big as titans today, nor as dominant. Open source code will flourish and vendor lock-in will diminish. True full portability of value!

— Pandemic Update —

In reviewing our Thesis, Predictions and Supporting Theses (below) in the context of the global pandemic, we stand behind each point and now see a heightened and accelerating demand for digital trust. We couldn’t imagine a stronger, more immediate stimulus toward digital trust technologies like SSI and Verifiable Credentials.

Sam & Timothy

Supporting Theses

1. The time to invest capital and resources into self-sovereignty is now.

2. Now that SSI and transitive trust are possible, their ubiquity is inevitable.

3. The internet must be re-decentralized. With user sovereignty, now it’s feasible.

4. Re-decentralization makes markets bigger, dominant players and moats smaller, and rewards superior execution by anyone.

5. Cooperative network effects of SSI will be exponentially bigger than network effects of platforms.

6. SSI and verifiable credentials will enable, for the first time ever, transitive trust for high-value interactions (LOA 3 and 4).

7. Strong UX/CX is already critically important; user sovereignty will make it 10X moreso. UX breakthroughs will be the primary driver of SSI adoption.

8. “Fat Protocols” don’t apply to SSI; the greatest value will be captured at the application layer, just like the internet.

9. Privacy will make a big comeback, and become a competitive advantage.

10. The future isn’t peer-to-peer; it’s agent-to-agent.

11. You’ll soon manage hundreds of private keys, then thousands. Key management will become a gigantic industry, and the new battlefront for fraud.

12. Blockchains are silos. There won’t be one winner.

13. SSI will help extend identity and financial inclusion to everyone.

14.  Central banks globally will issue Central Bank Digital Currencies (CBDCs) and embrace SSI for identity, fraud, and compliance.

1.  The time to invest capital and resources into self-sovereignty is now.

The megatrends pushing the world toward self-sovereignty are numerous and powerful:

  • Social distancing creates immediate widespread demand for digital trust
  • GDPR, CCPA, regulatory trend toward individual control and privacy
  • “Breach of the week”, broken security models
  • Growing disdain for big tech, “surveillance capitalism”
  • Ubiquity of smartphones, internet, and digital transactions
  • Proliferation of (and the desired elimination of) usernames and passwords
  • Emergence of distributed ledger technologies
  • The Internet of Things
  • Gartner, Forrester, Mercator, and other analysts are bullish on SSI
  • IBM, Microsoft, the US Credit Union industrySamsung, MasterCard, Workday, and the European Union are publicly supporting and adopting SSI

When we began working on SSI in 2015 there was no GDPR, no Edward Snowden, and no widespread awareness of blockchain. Big tech was still admired and surveillance capitalism riding high, entirely unchecked.

A lot has happened in the last five years, with serious movements toward individual privacy and control accelerating globally. SSI is the ultimate end of the personal control continuum, where upstanding citizenship and full legal compliance are still valued.

The internet connected the world with a network, but without a means of trust; pains from that omission hit global headlines daily. SSI finally provides that means of trust and takes it a critical step further, making trust transitive.

SSI solves trust between parties interacting on the internet, and transitive trust re-decentralizes it. There has rarely existed a greater challenge, nor a greater opportunity.

2. Now that SSI and transitive trust are possible, their ubiquity is inevitable.

Perhaps the most exciting benefit of SSI is transitive trust, where trust established in one domain is partially or completely acceptable in another. 

5-silos02Examples of transitive trust:

  • A doctor credentialed in one country could be quickly authorized in another
  • A police officer could complete a traffic stop without leaving their vehicle
  • A caller transferred between departments would not need to be bothered to re-authenticate
  • Websites could accept credentials they didn’t issue that are stronger and less friction for users than usernames and passwords
  • Onboarding and KYC processes can be fast, frictionless, and much stronger
  • Identity theft, account takeover, phishing, CNP and other forms of fraud could become far more difficult for fraudsters
  • Elements of student transcripts and job applicant resumes could be quickly verified by schools and employers
  • Children could be prevented from accessing adult-oriented websites
  • Online gamblers could be prevented from overextending themselves across different gaming sites
  • Secure internet voting could become a reality globally
  • User sovereignty” could enable us to move between platforms like Facebook or Twitter without losing our friends or followers
  • Usernames and passwords could finally go the way of the dodo

And many, many more… any place where proof of something is required or useful and verifications are difficult to quickly obtain. Transitive trust solves too many big, important problems for its adoption to do anything but accelerate toward ubiquity.

    3. The internet must be re-decentralized. With user sovereignty, it’s now feasible.

    At the beginning of the internet, a “skinny” protocol (IP) enabled any type of hardware to run any kind of application, giving users portability between applications. Due to IP’s inherent lack of security and trust capabilities, however, applications became walled gardens so that users could interact in a trustful manner (think AOL, Facebook, Amazon).

    While “big tech” earned its success by delivering immense value, the consolidation of wealth, power, and influence has gone too far and become toxic in many ways, stymieing choice, competition, and innovation. Worse, users and customers have become captive, unable to escape without leaving their data, relationships, and sometimes livelihoods behind.

    It’s time for a better model.

    So like a famous Facebook investor and the inventor of the internet, we’ve concluded that the internet must be re-decentralized. With transitive trust and open, standardized protocols, it’s now feasible.

    How? User sovereignty.6-SSIPNG

    Multi-sided platforms don’t just hold data captive, they control the more critical element: relationships. You can’t leave Facebook without losing your friends, or Twitter without losing your followers. Gaining control of relationships and the ability to discover new ones are prerequisites to escaping platform captivity, even more than data portability.

    Full user sovereignty, the kind that can make re-decentralization a reality, requires open, standardized protocols that enable four capabilities:

    1. Owning and controlling relationships (friends, followers, contacts, etc.)
    2. Discovering new relationships (friends, followers, riders, drivers, hosts, guests, etc.)
    3. Storing personal data in a portable manner
    4. Trust sufficient to transact

    Protocols for controlling relationships and establishing trust are underway and entering production. Discovery protocols for different verticals have yet to be assembled, but the necessary pieces now exist. Protocols for portable personal data storage are now being developed on several fronts, including by Microsoft, and will usher in a new era of data sovereignty.

    Once all four elements are operational, and two already are, markets will open, network effects will accelerate, and playing fields will level. As Twitter founder Jack Dorsey (surprisingly) recommends, to learn more about the need for re-decentralization, read the excellent essay: Protocols, not Platforms.

    4. Re-decentralization makes markets bigger, dominant players and moats smaller, and rewards superior execution by anyone.

    In less than six years the global market for rides jumped from $100 to $200 billion thanks mostly to Uber, and it’s still growing. Uber lowered transaction costs by removing barriers—cashless payment, app-ordered rides, privately owned cars—that unleashed an explosion of market-expanding competition and innovation.

    SSI similarly lowers transaction costs for digital interactions by enabling mutual trust that’s faster, stronger, more efficient, more open and more universally available than previously possible. These reduced transaction costs spur activity far more broadly than rides, affecting all markets having digital interactions that require trust.

    In other words, SSI will expand every market it touches.

    However, leaders in SSI-enhanced markets will not be as dominant nor grow as large as Uber or AirBnB, due to user sovereignty, which enables new competitors to quickly gain market share when they please users and customers better than incumbents. First movers will still have an advantage to gain market and mind share, but a failure to out-execute new competitors could erase that advantage.

    5. Cooperative network effects of SSI will be exponentially bigger than platform network effects.

    When networks “cooperate” some value from one network is transferable to another. Cooperative inter-network effects are exponentially greater than intra-network effects*, like comparing the internet to AOL.

    With SSI, several credit unions (CUs) in the U.S. are now issuing verifiable credentials to members to enable a streamlined experience when they call in, walk in, or log in. However, any other website could also choose to accept these credentials and offer sleek onboarding and login experiences that eliminate forms and passwords. Which sites wouldn’t prefer instant onboarding and authentication of new customers from cryptographically verifiable credentials issued by a regulated financial institution, instead of forms, usernames, and breachable passwords?

    The only obstacle is awareness.

    This example shows how transitive trust fosters cooperation between non-competing networks, lowering transaction costs for all parties and increasing the size of two networks through activities in one. Value flows both ways, as CUs benefit from increased satisfaction when members successfully use CU-issued credential outside the CU. And websites are just the beginning: the car dealer, the furniture store and even the sandwich shop could extend credit or offer discounts by accepting these same credentials. In fact, every network that accepts CU-issued credentials grows each time a CU issues a verifiable credential to a member, even if they’re completely unrelated to the financial industry.

    This kind of cooperation between unrelated networks, both intentional and unintentional, has rarely been observed or achievable but with SSI is predictable. The resulting ‘meta’ network effects—Smith’s Law*are exponential compared to intra-network effects and beyond Metcalfe’s Law. The math is staggering.

    *The theoretical basis for cooperative network of network effects is provided in this paper by DTV’s co-founder, Dr. Sam Smith. It describes a new network scaling law that extends Metcalfe’s law type network scaling to transcontextual value transfer among a network of networks.

    6. SSI and verifiable credentials will enable, for the first time ever, transitive trust for high-value interactions (LOA 3 and 4).

    In 2003 the U.S. National Strategy for Trusted Identities in Cyberspace (NSTIC) introduced an authentication framework for increasing Levels of Assurance (LOAs) for digital interactions of increasing risk, with LOA 1 the lowest (think Facebook login) and LOA 4 the highest*. Similar frameworks have been developed elsewhere.

    The problem? As far as we know, there are still no examples anywhere in the world of a LOA 3 or 4 (or comparable) digital identity being accepted on its face by an LOA 3 or 4 relying party; the risk and liability have still not been overcome.

    This can now change. With SSI, verifiable credentials, and an applicable governance framework, it’s not only possible to prove possession of LOA 3/4-type credentials, a relying party can also instantly verify that each step in the issuance process was performed appropriately**. This creates an interesting market for credentials from high-trust issuers having provably high-quality processes.

    This capability, along with SSI’s frictionless means to exchange more factors and significantly more credentials—a “rich credential presentation”—leads us to conclude that SSI-enabled LOA 3 and 4 interactions will become standard and commonplace.

    *In 2017 NIST officially deprecated the LOA levels, but the point made here remains the same.

    **Australia is considering legislation to legalize exactly this model for KYC.

    (NIST has recently published their rather optimistic view of SSI technology)

    7. Strong UX/CX is already critically important; user sovereignty will make it 10X moreso. UX breakthroughs will be the primary driver of SSI adoption.

    Strong UX is already a competitive necessity. In a world of user sovereignty the stakes climb much higher: customers and users are free to leave if they’re not pleased, for any reason. A startup with breakthrough UX would quickly gain business even in a market dominated by large, established competitors.

    We think that’s a very good thing.

    SSI enables outside-the-box, near-invisible, game-changing UX/CX simply not possible before, making currently clunky processes simple, fast and seamless. Users can customers can finally be recognized as welcome guests, rather than repeatedly treated as strangers.

    Early adopters will enjoy significant competitive advantages, which will be the primary driver of SSI adoption for years to come.

    Attention multi-sided platforms: delight your users and customers while you still have them, or they’ll leave you, which they’ll soon be able to do. (The good news? You can just as easily win them back.)

    8. “Fat Protocols” don’t apply to SSI; the greatest value will be captured at the application layer, just like the internet.

    Fat Protocols hypothesized that blockchain would manifest an inverse value capture model of the web, where protocols are ‘fat’ and applications are ‘skinny’. So far it hasn’t materialized, unless you consider the high value of bitcoin today for early holders and the lack of bitcoin-based applications a useful manifestation of this principle. We do not.

    For value creation and capture in Web 3.0, we think SSI will follow the same pattern as the internet, with skinny protocols and fat applications, but not as fat as they are today (see Supporting Thesis 4).

    9.  Privacy will make a big comeback, and become a competitive advantage.

    Privacy is not gone, despite the naysayers, and will become an investable advantage for companies that facilitate it. Surveillance capitalism is creepy and facial recognition is running rampant, but we see some light at the end of the dark privacy tunnel:

    1. With ubiquitous adoption of SSI, having personal information—SSN, credit card numbers, mother’s maiden name, etc.—will no longer be sufficient to impersonate. The incentive to steal PII will collapse, reducing breaches.
    2. The value of behavioral data (shopping, browsing) to marketers grows stale over time. SSI gives the subject control over who or what can see their current behaviors, making older data held by non-permissioned marketers quickly become less valuable.
    3. With SSI, the subject controls who or what can communicate with them, and how. Having data about a subject doesn’t give marketers means to display to them their ads, further reducing the value of non-permissioned data.

    Advertising will become a meritocracy around permissioned data, where advertisers have unique secure connections to interested customers. Advertisers will not need to guess our interests when displaying ads, we’ll share our interests with the services we like, and they’ll carefully respect the privilege in order to keep it.

    As people experience this control and the associated privacy, they’ll become increasingly allergic to offerings that do not provide it.

    10.  The future isn’t peer-to-peer; it’s agent-to-agent.

    We’ve never met anyone who communicates directly over the web, and neither have you. We need devices and software to interact on our behalf, ‘agents’ performing the digital and mathematical heavy lifting.

    21_peer_conection01

    While we consider SSI peer-to-peer, it’s technically device-to-device or even software-to-software. But which software can you trust to act on your behalf? How do you know that it’s acting on your behalf, if it was made by someone else? Siri reports everything to the Apple mothership, as Alexa does to Amazon and Cortana to Microsoft. These personal ‘agents’ are more like double agents, who don’t really work for you. We prefer Tony Stark’s Jarvis: he works only for Tony.

    SSI amplifies the need for software agents to loyally do our bidding, both on local devices and hosted “in the cloud,” for when we or our devices are unavailable. We predict that sovereign agents (like Jarvis) that respect individual sovereignty will become an enormous business, and part and parcel of the way we interact online.

    11.  You’ll soon manage hundreds of private keys, then thousands. Key management will become a gigantic industry, and the new battlefront for fraud.

    Some downplay SSI for one belief: people won’t want or be able to effectively manage their private keys. Truly, the state of the art in private key management UX is awful. But we predict big advances in the technology and UX in all the three R’s of key management: reproduction, recovery, and rotation. 

    One promising approach, for example, uses Shamir’s Secret Sharing combined with sovereign agents.

    Regardless of SSI, many, many keys will soon be generated and everyone (and many connected things) will need a solution.

    Cryptocurrencies create widespread need for key management “at the edge.” Securities and real estate will become tokenized and then many other assets, generating still more keys. Pairwise SSI will generate private keys for each relationship with other people, organizations, and things.

    Edge key management will become a massive industry and of course, the new battlefront for fraud.

    12.  Blockchains are silos. There won’t be one winner.

    Even with decentralized governance, if a blockchain requires counterparties to register with the same blockchain, it’s a silo similar to today’s platforms in terms of user and data portability.

    Bitcoin, bitcoin cash, ethereum, ethereum classic, and other blockchains (and forks of blockchains) each compete for users, transactions, and attention, just like traditional siloed platforms. If everyone in the world used the same blockchain, like using the same internet, this problem would go away, but that’s not going to happen.

    The answer to the interoperability dilemma is both powerful and simple: make the user the point of interoperability instead of the ledger/database/platform. That is the premise of SSI. When a wallet (a woefully inadequate term) is capable of transacting with many ledgers and databases, those ledgers or databases no longer must directly interoperate, and blockchains become a less critical component of the stack, where any storage medium participants trust can work.

    13.  SSI will help extend identity and financial inclusion to everyone.

    Globally, one in three children under five and one in seven people overall do not officially exist.

    As we see happening in Sierra Leone, Thailand, Kenya, Senegal, and Myanmar, we’ll eventually see everywhere: self-sovereign identity enabling people to prove many important things about themselves. Even those unable to manage their own credentials—children, seniors, disabled, refugees—can have guardians to assist them.

    14.  Central banks globally will issue Central Bank Digital Currencies (CBDCs) and embrace SSI for identity, fraud, and compliance.

    Central banks the world over are seriously considering issuing Central Bank Digital Currencies (CBDC’s) with several announcing their intent to proceed, led by China and Japan. Now even the U.S. is making moves at the highest levels.

    CBDC’s have notable advantages over fiat currencies for settlement speed, liquidity efficiency, auditability and compliance. They also require private key management, but we believe this is a temporary concern (see Supporting Thesis 11).

    As with all digital transfers of value, counterparties must be careful during coordination and communication of the transaction. With cryptocurrencies and RTGS (faster payments) systems, however, settlement is final— there is no “oops” button—so the need for counterparties to ensure security and accuracy is heightened.

    If any government proceeds to provide direct compensation to citizens, as the U.S. is now considering, strong digital identification becomes immediately critical.

    We Could Be Wrong

    We stand behind our theses and have the information and experience to back them up. However, as with all macro trend predictions, we could be wrong or misguided in our underlying assumptions.

    If you have information or insight that might help our understanding, please contact us and help us get it right.