Welcome to Crypto Long & Short, our institutional newsletter featuring insights, news, and analysis for professional investors. This week, we delve into the issue of digital fraud and the importance of state-led identity solutions. By Tricia Gallagher, founder of Treasury Solutions Info Tech, the estimated $5 trillion lost to fraud and improper payments in the United States is a staggering number that highlights the need for a new approach. The current focus on detection, recovery, and enforcement is insufficient, as it fails to address the underlying issue of identity.
A state-led approach to digital identity, where individuals have control over their personal data, is essential for preventing fraud and promoting trust in the digital economy. The United States has seen a growing movement towards individual control over personal data, with many advocating for a shift away from centralized data silos. The financial system, where data use is more tightly regulated, still often lacks meaningful visibility and control for individuals.
The technology sector, where personal data is routinely collected and monetized, is even more pronounced in its lack of transparency and control. 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. The core challenge is not simply data protection, but how to enable 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 them as the anchor of trust. The future of digital identity will require states to become the foundation of trust, not by expanding data collection, but by re-architecting how that trust is expressed. 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. 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. Other news this week includes stablecoins, with the Federal Deposit Insurance Corp. formally proposing its approach to U.S.
federal rules, and crypto entering geopolitical tensions as Iran explores collecting transit fees in cryptocurrency.