Welcome to Crypto Long & Short, our institutional newsletter offering insights, news, and analysis for professional investors. This week, we explore the future of digital identity and its role in preventing fraud. Expert Insights: Fighting Fraud in the Digital Age.
By Tricia Gallagher. The United States has suffered an estimated $5 trillion in losses due to fraud and improper payments across government programs, highlighting the need for a new approach.
Most policy responses focus on detection, recovery, and enforcement, neglecting the underlying issue of identity. Fraud at this scale is not a compliance failure, but an infrastructure failure, with identity at its core. Addressing it requires a shift from band-aid solutions to a re-architecture of our digital identity framework.
A growing movement emphasizes that identity and control over personal data belong to the individual, not banks, technology platforms, or the government. Even in the financial system, where data use is regulated, individuals often lack meaningful visibility or control. Data sharing operates through broad, one-time consent frameworks, enabling ongoing access and reuse of financial data with limited transparency.
When consumers cannot direct how their data is shared and used, they are limited in accessing new financial services, constraining innovation, reducing competition, and slowing economic growth. This dynamic is more pronounced in the technology sector, where personal data is collected, aggregated, and monetized at scale. Individuals have limited awareness of who has access to their data and how it is used. At its core, this model requires individuals to surrender control of their identity and personal data to participate.
These systems are inefficient, expand the surface area for misuse and security breaches, and erode 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 largely within the constraints of the current system. Congressional efforts to update the Gramm-Leach-Bliley Act focus on consumer data control through opt-in and opt-out regimes. The Trump Administration has elevated fraud prevention through expanded oversight and increased data sharing across agencies.
Since January 2025, over a dozen federal initiatives have been launched. Policymakers are pursuing incremental privacy improvements, while expanding access to sensitive government data to combat fraud.
The result is continued reliance on centralized data pools, combined with limited individual control over personally identifiable information (PII). These architectures increase exposure, create attractive targets for bad actors, and remain difficult to secure at scale. The core challenge is not data protection, but enabling trusted verification and privacy while preserving individual control over personal data.
Without that control, individuals must relinquish how their data is accessed and used, undermining a core inalienable right in the digital economy. States have a critical role to play, having long served as the primary issuers of identity through birth records, driver’s licenses, and other foundational credentials.
The future of digital identity will require states to become the anchor of trust, not by expanding data collection, but by re-architecting how that trust is expressed: shifting from centralized data silos to privacy-preserving, user-controlled 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 not to remove the state, but to modernize how trust is expressed. By shifting to privacy-preserving, user-controlled credentials, states can 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. The future of digital finance will not be defined by speed alone, but by whether systems uphold both trust and rights. Identity is the bridge between the two.