Welcome to Crypto Long & Short, our institutional newsletter offering insights and analysis for professional investors. This week, we delve into the pressing issue of fraud in the digital age and how state-led identity solutions can provide a way forward. Tricia Gallagher, founder of Treasury Solutions Info Tech, discusses how the current approach to digital identity is flawed and how a re-architected framework can help mitigate 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. Gallagher argues that the underlying issue is an infrastructure failure, with identity at its core.
A growing movement emphasizes the importance of individual control over personal data, rather than relying on banks, technology platforms, or governments. This dynamic is particularly pronounced in the technology sector, where personal data is often collected and monetized without users' knowledge or consent. The current model requires individuals to surrender control of their identity and personal data, leading to inefficiencies, security breaches, and erosion of individual agency. Two major policy debates in Washington reflect this tension: reducing fraud and improper payments, and control of consumer financial data.
Policymakers are responding, but their efforts are largely constrained by the current system. Congressional efforts focus on consumer data control through opt-in and opt-out regimes, while the Trump Administration has elevated fraud prevention through expanded oversight and data sharing.
However, these approaches rely on centralized data pools and limited individual control, increasing exposure and creating targets for bad actors. The core challenge is enabling trusted verification and privacy while preserving individual control over access to personal data.
States have a critical role to play in leading the next phase of digital identity infrastructure, positioning themselves as the primary issuers of identity through birth records, driver's licenses, and other foundational credentials. Utah provides a clear example, introducing a Digital Identity Bill of Rights that places individuals at the center of how their identity is used and shared. The goal is to modernize how trust is expressed, shifting to privacy-preserving, user-controlled credentials that reduce fraud, improve transparency, and strengthen 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.