The Future of Digital Identity: How States Can Lead the Fight Against Fraud

Welcome to Crypto Long & Short, our weekly institutional newsletter. This week, we delve into the world of digital identity and the role states can play in shaping its future. Tricia Gallagher, founder and principal of Treasury Solutions Info Tech, argues that the current digital identity systems are broken and that a state-led approach is necessary to combat fraud and promote trust. The United States has lost an estimated $5 trillion to fraud and improper payments, with most policy responses focusing on detection and enforcement rather than addressing the underlying issue of identity. Gallagher contends that identity and control over personal data belong to the individual, not banks, technology platforms, or governments. The current model, which requires individuals to surrender control of their identity and personal data, is inefficient and expands the surface area for misuse and security breaches. Two major policy debates in Washington reflect this tension: reducing fraud and improper payments, and control of consumer financial data. Policymakers are responding, but largely within the constraints of the current system. Gallagher argues that states have a critical role to play in leading the next phase of digital identity infrastructure, by re-architecting how trust is expressed and shifting from centralized data silos to privacy-preserving, user-controlled credentials. Utah provides a clear example, with its Digital Identity Bill of Rights placing 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 reliance on centralized data and restoring individual control over identity and personal information.