New White House standards strategy could have implications for crypto industry KYC

The administration of United States President Joe Biden released a national standards strategy for critical and emerging technologies on May 4. The strategy stated that the U.S. would prioritize standards development in eight areas. Among the prioritized areas are “digital identity infrastructure and distributed ledger technologies, which increasingly affect a range of key economic sectors.” 

“Distributed ledger” is a synonym for blockchain. Digital identity is “the unique representation of a subject engaged in an online transaction,” according to a National Institute of Standards and Technology (NIST) document now under review. Digital identity is “unique in the context of a digital service, but does not necessarily need to uniquely identify the subject in all contexts,” the document added.

NIST is the federal agency that coordinates government standards activity.

One obvious use of digital identity in economic sectors is Know Your Customer (KYC) and Anti-Money Laundering (AML), where blockchain solutions are being actively developed as regulators and enforcement agencies demand greater AML compliance in the U.S. and around the world in the crypto industry.

Related: Europe’s digital ID wallet — Easy for users or a data privacy nightmare?

Innovations such as zero-knowledge KYC verification, based on the blockchain’s consensus mechanism, have been proposed to carry AML verification, credit scoring and similar information. Passporting techniques using soulbound nonfungible tokens (NFTs) have been deployed to make off-chain identity accessible.

Privacy issues are deeply intertwined with digital identity and are areas where the government and crypto industry have yet to reach accord.

The goal of the strategy is to protect U.S. consumers and the country’s role in developing international standards, the White House said. The strategy will bolster investment in “pre-standardization research” in the key areas identified, encourage private-sector and academic participation in that research, invest in training, and ensure integrity and inclusivity.

The Treasury Department’s Office of Financial Research leads the government’s work on digital identity, digital assets and distributed ledger technology in federal and international agencies.

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