Why Microsoft is using Bitcoin to decentralize online identity

During May’s Blockchain Week in New York, Microsoft announced the launch of its decentralized identity initiative — Project ION (Identity Overlay Network), which uses the censorship-resistant qualities of Bitcoin to safely store decentralized user identities (DIDs).

“What we want to make possible is for people to own all aspects of their identity and be able to control the sensitive information in their lives — something that we don’t have today, that we’ve lost on the web, which has kind of centralized over time,” said Microsoft’s decentralized identity lead Daniel Buchner, on the What Bitcoin Did podcast.

Just like Bitcoin’s pseudonymous public keys, the ION network will allow users to mint decentralized digital identities, which aim to act as an immutable replacement for email addresses and usernames, and potentially a vault for sensitive personal data — from insurance details to passports in digital form.

These identities will be used to seamlessly access online applications in a similar manner to Facebook Connect, without the need to indiscriminately surrender personal data. They could also be used in real-life applications by allowing doctors to cryptographically verify the medical details of patients, or university students to verify their qualifications.

The goal is to create “a decentralized identity ecosystem where millions of organizations, billions of people, and countless devices can securely interact over an interoperable system built on standards and open source components,” says Bucher.

Lightning for identity

While global tech giants are hard at work developing private blockchain projects, Microsoft has taken a different tack — one that resonates with the open-source approach that the company has adopted over the last few years.

With no advertising network like Facebook or Google, Microsoft has less incentive to take control of user data for its own purposes, leaving the company free to develop on the public, permissionless Bitcoin blockchain. “It needs the strongest trust layer that doesn’t require centralized actors and that’s open public blockchains,” said Buchner.

While private blockchains like Microsoft’s Azure are able to process 100,000 transactions per second, as a decentralized public blockchain, Bitcoin lags behind at roughly ten transactions per second — nowhere near fast enough to service the volume that would be created by billions of decentralized digital identities.

To scale to the capacity needed, Microsoft has built Project ION as a Layer 2 network, described by Buchner as “spiritually akin to Lightning”, but with very different technical features — having no tokens and no signatories.

Using the underlying protocol Sidetree, ION batches transactions and anchors them with a single hash, increasing efficiency and pushing fees down to what would be just a “rounding error” to a billion-dollar company like Microsoft, which is expected to foot the bill.

Building out the network

Why is Microsoft prepared to make this investment? Because while the company might not make money from the blockchain infrastructure, it hopes to generate revenue from services that will eventually be built on the network. “We’re already an enterprise identity company. If we empower users and corporations with that sort of identity system, we can start making money in new ways with these services that are built on top,” said Buchner. “We’re interested in making really great phone calls, so we’re going to try and put up the telephone poles and the wire.”

These poles and wires, the nodes of the network, will be operated by Microsoft and its partners, which include global data company Equinix and Cloudflare — the internet performance and security company that boasts one of the world’s largest networks. These companies are not expected to have a monopoly on either the network or the protocol, and just as permutations of the code are being adapted for the same purpose on Ethereum, anyone will be able to set up their own node and process the data for their own ID state changes.

Project ION is an early-stage project and for now, it is on the Bitcoin testnet only. Over the next few months, a mainnet launch is expected, but as Buchner concludes, it might be too late for those of us who already have personal data spread over the web. “I almost feel like for those of us born today, who have had our birth certificates minted already, we can’t put the cat back into the bag. But our children, the people to come, they will potentially have the opportunity to start afresh, with privacy baked into their life by default.”