Welcome to Crypto Long & Short, our institutional newsletter featuring insights and analysis for professional investors. This week, Tricia Gallagher discusses the need for a state-led approach to digital identity, citing the estimated $5 trillion lost to fraud and improper payments in the United States. The current system, which relies on detection and enforcement, is inadequate and requires a shift towards a re-architected digital identity framework. A growing movement emphasizes the importance of individual control over personal data, rather than relying on banks, technology platforms, or governments.
The financial system, where data use is regulated, often lacks transparency and visibility, limiting access to new financial services and constraining innovation. The technology sector, where personal data is collected and monetized, also fails to provide individuals with control over their data. The existing model requires individuals to surrender control of their identity and personal data, leading to inefficiencies, security breaches, and erosion of individual agency. Policymakers are responding, but their efforts are largely incremental and focused on updating existing systems.
Two major policy debates in Washington reflect the tension between reducing fraud and controlling consumer financial data. However, these debates are treated as separate issues, rather than addressing the underlying structural gap.
States have a critical role to play in leading the next phase of digital identity infrastructure, having long served as the primary issuers of identity through birth records, driver's licenses, and other credentials. Utah provides an 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 from centralized data silos to privacy-preserving, user-controlled credentials. By doing so, states can reduce fraud, improve transparency, and strengthen accountability.
The future of digital finance will depend on whether systems uphold both trust and rights, with identity serving as the bridge between the two.