Welcome to Crypto Long & Short, our weekly institutional newsletter. This week, we delve into the pressing issue of digital fraud and the need for state-led identity verification to prevent it.
Tricia Gallagher, founder of Treasury Solutions Info Tech, argues that the current approach to digital identity is flawed and that a state-led system is necessary to protect individual rights and prevent fraud. The United States has lost an estimated $5 trillion to fraud and improper payments, with most policy responses focusing on detection and recovery rather than addressing the root cause of the problem.
Gallagher contends that the underlying issue is not a compliance failure, but rather an infrastructure failure, with identity at its core. The current system requires individuals to surrender control of their personal data, which can lead to misuse and security breaches. Two major policy debates in Washington reflect this tension: reducing fraud and improper payments, and control of consumer financial data.
However, policymakers are responding within the constraints of the current system, with efforts focused on incremental privacy improvements and expanded access to sensitive government data. Gallagher argues that the core challenge is not data protection, but rather enabling trusted verification and privacy while preserving individual control over personal data. States have a critical role to play in leading the next phase of digital identity infrastructure, with Utah providing a clear example of a state taking the lead. Through legislation, Utah has introduced a Digital Identity Bill of Rights that places individuals at the center of how their identity is used and shared.
The goal is not to remove the state, but to modernize how trust is expressed, reducing fraud and improving transparency and accountability. As federal debates continue to focus on managing data within legacy systems, states have an opportunity to lead in a fundamentally different direction, one that reduces reliance on centralized data and restores individual control over identity and personal information.