Ripple CTO David Schwartz: Proof of Identity Will Require Certificate Authority-Like Approach
In the virtual halls of Blockchain Journal (BCJ), we often talk about an elephant-in-the-room-like problem that we've nicknamed "The William Shatner Problem." It all started when our technical analyst Bob Reselman was looking at some non-fungible tokens that were once minted on the Wax blockchain in partnership with William Shatner and then asked a simple question: "How is anybody expected to know for sure that it was the real William Shatner who worked on these NFTs and not an imposter?"
When BCJ editor-in-chief David Berlind posed that same question to Wax co-founder William Quigley during the NFT.NYC 2023 conference in New York City, Quigley's answer was essentially that we have to trust Wax as a central entity to be telling the truth and that like Amazon, it's beholden upon Wax to market itself (and maintain itself) as a trustworthy marketplace. The problem with this approach is that it's a non-technological and non-standard approach that doesn't scale across the blockchain industry. In fact, BCJ's so-called William Shatner problem is not just about C2C contexts involving consumer activity in the primary and secondary market of NFTs. It's also a proxy for a larger identity issue that needs solving before businesses can fully exploit the potential of distributed ledger technologies.
During Consensus 2023 in Austin, Texas, after Ripple CTO David Schwartz concluded a fireside chat during which he openly discussed some of the challenges when it comes to the intersection of blockchain and identity, BCJ's David Berlind interviewed him for his perspective on the William Shatner problem. Similar to some of the conclusions that were reached in Berlind's interview of Wax's Quigley, Schwartz — one of the OGs of blockchain technology — agreed that it is a problem that needs solving, joked that he and Berlind should call some venture capitalists, and suggested there may be no way to avoid the need for central authorities that vouch for the identities of blockchain users (individuals or organizations). The idea is similar to the originally intended role of Certificate Authorities back in the days of Web 1.0.
By David BerlindPublished:May 5, 2023
David Berlind: Today is April 27th. This is the Blockchain Journal podcast. I'm your host, David Berlind, and I'm at Consensus 2023 in Austin, Texas where I'm standing with David Schwartz, who's the CTO of Ripple. And David, you just got done doing a fireside chat with David Bchiri of the XRPL Commons. You were talking a little bit about identity and how that's one of your favorite topics to talk about and some more recent work that Ripple's working on has to do with identity. You mentioned a problem where today you don't have a lot of identities connected to accounts. Those accounts are anonymous in many cases, it makes it hard particularly in B2B contexts, for businesses to do their business with other businesses. So first of all, welcome to the show.
David Schwartz: Thank you. Pleasure to be here.
Berlind: What's the solution to that problem? Because today, like we watched, when Siemens — they tokenized the bond on a blockchain. They used Polygon. They fractionalized that bond into four pieces. It was a 60 million euro bond. A bunch of other banks bought those four pieces. That's the primary market. But on the secondary market, that's a B2B context. Eventually, if you see more businesses doing things like that, these secondary markets have no idea whether it was actually Siemens that minted that thing in the first place and what they're getting. And at Blockchain Journal, we call this the William Shatner problem because we saw William Shatner mint some NFTs a couple of years back, and we weren't sure how you would know they were actually minted by William Shatner himself and not somebody else claiming to be William Shatner. They did that on WAX. And we asked William Quigley, who's the founder of WAX, how do you know that was really William Shatner?
And he said, "Well, because we said it's so." And I thought, well, that's kind of a centralized approach. It doesn't really solve the problem in a scalable fashion. It's not technological. It's more about trusting a middleman. And additionally, if we look back in time, we already had something like that called certificate authorities that did that same thing for Web 1.0. And now I would say CAs are kind of dead. If you go to any page that's served by Google, the certificate authority is Google, which defeats the whole purpose. So what's the solution to this problem?
Schwartz: Well, and I'd also point out that that solution might work well for William Shatner, but it's not going to work well for... It doesn't scale, it's going to work well for the A-list celebrities who some big entity can make sure that they're actually... Someone can talk to their representative. That doesn't work for ordinary people. I think the solution is going to have to be decentralized identity systems that can be bound to accounts. So I didn't mention the NFT case when I was talking in the fireside chat, I was talking more about the compliance issue for institutions.
But you're right that there is an equal problem, maybe even a bigger problem with NFT issuance where if I want to issue an NFT, how do people know it's me? And the solution is going to have to be something somewhat like certificate authorities, where there will be entities that will vouch for my identity, they'll verify my identity in a country-specific way in the United States, it might be [my] driver's license and they'll issue a certificate that I can then attach to a ledger account. And then if I issue an NFT, you can see the account that issued it on the blockchain and then you can walk your way to that certificate.
Berlind: [That] works good for people. I can give you [a] driver's license. What are businesses going to do? Because there's no sort of equivalent business registry. I think there's something called GLEIF that started up, but I can't even get in touch with those guys. Businesses want things that scale where there's a technological backbone to provide that scale. If you think about what Siemens did with those other banks, they were probably all in the room pointing at a screen [and] saying, "Yeah, that's our account. So you can be rest assured that you're not paying 50 million euros for something that we're not issuing." So how do businesses do that?
Schwartz: I haven't really thought about that problem before. It's actually an interesting problem. I mean, there's a business need for entities that will verify that an account is in fact bound to a particular company. I guess it's going to be jurisdiction-specific, whether they have a registry of corporations or some other sort of business documents that they could use. I guess, most of the registries, when you form a corporation, the jurisdiction where you form the corporation usually has a database that people can access, but you still need some way to bind that to an account. And I guess there's a business need for that. Maybe we should go pitch that to VCs. What do you think?
Berlind: Well, okay, we're going to go in[to] business together. We can do that. I just don't know. There are different entities working on that problem. I think the government of Australia recognized that problem and they're taking on the role of creating some sort of central identification registry, they're partnering with industry in Australia. And that way, whether you are a consumer or a business, you can have some sort of verifiable identity. The problem is that works really well within Australia, but what if a business in Australia is doing business with a business in the United States? There's no interoperable way to build that trust. The company that's in the United States doesn't have the benefit of the United States doing the same thing.
Schwartz: Well, and verifying individual identity certainly is going to be jurisdiction-specific. In some countries, there's a national ID card that everybody has and in other countries, there isn't and they're going to have to be businesses that have expertise. And then if you are an operator who's doing business in this sort of future world where we have these decentralized identities, you're going to have to decide what forms of identity you're going to accept. So it may be that if a business is in Australia, you'll accept this particular identity provider.
I do think it works better if governments are willing to provide portable digital identities because every form of identity is ultimately going to have the government probably as a HOP. If it's a business registry, it's going to be you create a business by registering with the government. If it's a person, the way you tell that two people are two different people is they have some sort of identity generally issued by [a] government. So it does work best if the governments are willing to issue digital identities just because they're going to be in the loop anyway. And so you might as well not have additional counterparties, but there can certainly be competition for that next HOP, which might be better if governments offer digital identities in some form, but not others. But I'm definitely a big fan of governments offering national identities and business identities in digital form.
Berlind: I'm not going to ask you questions about what's going on between you and any government entities, but Ripple is no stranger to the machinations of the government. Do you have any faith the United States could actually accomplish that in a reasonable amount of time?
Schwartz: We have a great system of post offices that almost everybody in the United States can get to. I mean, it would be awesome if post offices would offer people a digital identity. I don't see a downside for the government to enable compliance. I mean, the idea that the only argument you can make against it is, I don't know, having compliant behavior builds a system that can be used non-compliantly, but the system's going to grow anyway. NFTs are here, blockchains are here. I can't imagine why enabling people to interact in a way that allows them to know who they're doing business with and sue them if there's a problem. What's the downside for that for a government?
Berlind: Well, when you're on stage, you were talking about the early days of blockchain and there was a lot of, I would say, religion. There might be some people who are married to the idea of decentralization that find the centralized nature of what you're describing to be somewhat problematic, somewhat the antithesis of what blockchain is.
Schwartz: Well, I would push back on that and I would say as long as the blockchain isn't forcing you to do that, I don't have a problem with it. I think enabling people to comply with regulations is a good thing. Coercing them at the blockchain level into compliance is a bad thing. We'll let the governments do that. I'm in the United States. The United States government has the right to tell me what I can and can't do, subject to the limits of our Constitution. And if I want to comply with those laws, I think a Blockchain should allow me to. If I don't want to, I don't think it's the blockchain's job to compel me to. I think that's where I draw the line.
Berlind: What about enterprises that are coming from a pretty much fully centralized world right now? A lot of businesses probably will be pretty comfortable if some part of the workflow is centralized anyway. It's not like a major departure for them.
Schwartz: Right. And let's not let the perfect be the enemy of the good. These systems will always have to compete with systems that don't have [an] identity. They'll always have to compete with what the Bitcoin blockchain offers. And so if they win, it's because they solve people's problems better. And so I think more is good.
Berlind: You talked about institutional adoption. I think you were referring to previous technologies, and it wasn't until the institutions came in, the enterprises showed up that things hockey stick. Do you think that's true of blockchain?
Schwartz: I do. I think it can grow without institutional adoption, but I think that that can be a massive accelerator and I think it's worth the effort to pursue it. And I also think that that's something that companies like Ripple can do better than can be done in a sort of community fashion, the sort of grassroots adoption communities are great at. But institutional adoption requires enterprise software and stuff. And so that's a role that companies like Ripple can play.
Berlind: I understand that you also have an opinion on [the] tokenization of assets. So what's your opinion on that?
Schwartz: I think the tokenization of assets as a way to enable people to hold them and move them better. And I think we're going to see a world where all kinds of assets, even real-world objects, can be tokenized as a more efficient way to hold and transact them as a way to reduce friction. We'll see if I'm right, but I think that people have all this ownership that's scattered in all different places. Ownership of digital rights. If you have books on a Kindle, you have movies that you've purchased and there's just video games, your rights are just all scattered, and there's just such a good argument for putting them in one place so that you can manage them when you pass away and you can control who can access them. And it just makes so much sense to consolidate the way to do that. And I think blockchains and tokenization are the only technology that can do that.
Berlind: For enterprises though, where generally they drive liquidity through a public stock offering, now they can take some single asset, like a skyscraper, tokenize that, [and] get some liquidity off that one asset by fractionalizing it. [Do] you see that as being a pretty big use case?
Schwartz: I do. And I think that gives people a better opportunity to... Like today, you can invest in things, but it's the sort of friction in terms of managing and controlling. I'm fortunate in that I have a broker and I can invest in all public stocks and everything. It's not that difficult for me, but for a lot of people, it is impractical for them to manage their money in a way, anything close to that. And so they wind up basically holding their dollars in a savings account, or worse, not even having those options. So I think that as a means of financial inclusion is valuable and as a sort of more fair way to raise capital, I think that's a big deal.
Berlind: Well, David, I could ask you a million questions. You're an OG, you go back over 10 years now, but I think we're out of time. I know you have to move on to your next appointment. So thank you very much for joining us here on the Blockchain Journal podcast.
Schwartz: Thanks, David. It was great being here and great talking to you.
Berlind: So we've been speaking with David Schwartz, he's the CTO of Ripple, and we thank you. And if you want to see more of our podcasts, just go to blockchainjournal.com or you can find our channel on YouTube. We'll see you at the next podcast.