Creating sustainable business models around digital credentials has been a serially overlooked challenge. To date, digital credentials have been praised largely for their philosophical benefits, such as empowering user privacy and data protection; or, solving compliance challenges. And while these benefits are noteworthy, on their own, they do not lead to widespread enterprise adoption. 

There is, however, a reason that commercial models are often avoided or put aside in conversations around identity:

Federated identity

In federated identity schemes, the participants generally commit to sharing and consuming data within a closed ecosystem of companies, to avoid each company carrying out their own customer checks. 

1. Problem 1 – transactional payments: The difficulty here is that in a consortium of 10 banks (for example), adding transactional costs for data sharing would be more prohibitive than profitable, because each company is both sharing and consuming data via the consortium. As such, this mutual benefit means federated identity schemes are more beneficial in regards to lowering costs, rather than making revenue.
   
   
2. Problem 2 – closed loop: In a closed loop consortium, each company agrees to a set of rules and governance framework. This means that the level of assurance in each data sharing transaction remains consistent. Therefore, there is no cost associated with trust, as trust is established by the governance framework. Therefore, there is nothing really to pay for, unless the scheme agrees to a flat fee for data exchange. 

Self-Sovereign identity

In an SSI paradigm the general idea is that cryptographically verifiable data is sent from companies to individuals directly, who then share that data with third party companies. This allows companies to trust each other without a direct relationship or consortium, broadening the utility of that customers’ data. However, while this sounds beneficial in principle, there have been challenges in practice:

1. Problem 1 – Lowering mutualised costs is not a strong enough incentive on its own: While credentials shared by the individual do reduce the cost of verification for the relying party – this same cost reduction can already be achieved through federated models. Therefore, there is not a clear enough commercial incentive for companies participating in federated identity schemes to make a switch to SSI. 
   
   
2. Problem 2 – Payments for SSI credentials poses privacy risks: Introducing payments for digital credentials has a far greater applicability in a decentralised market, rather than a federated market, because the relying party may not know who the issuer is. As such, a payment to “trust” the credential data and also the issuer is something companies would be willing to pay. However, since the data is shared by the individual, it is very difficult to create a payment flow for verifying shared data, without creating a privacy leakage risk for when that individual shares their data. 

We have positioned cheqd to solve these industry problems, and late last year we released our “Credential Payments” product which provides “issuers” of Credentials, such as KYC providers, credit bureaus, DAOs, etc., an incentive to issue credentials, whilst preserving the privacy of individual data “holders”. 

Importantly, Credential Payments was built with three core pillars in mind:

1. It is privacy preserving: Through payment-gating through credential status lists, the user’s privacy is strongly protected via “herd privacy”. Specifically, an individual credential is tied to a binary digit “bit” (either a 1 or 0) within a list of, at a minimum, 16,000 bits, where each “bit” refers to whether a credential is revoked/suspended or not.
   
   In this case, if a verifier pays to check this status list, neither the issuer (nor an oracle running on the network) will be able to “personally identify” the individual based on this data. Issuers may also periodically re-issue certain credentials that “rotate” the status list and respective entry, if the individual requests so – and importantly, the issuer can destroy their source data to “anonymise” the status list if necessary.
   
   
2. It is decentralised: Ensuring that no single party controls the payment gateway was another core decision in designing credential payments. This is because having a single organisation manage the interaction between payments and status list decryption could enable that entity to potentially monitor transactions, or would be a risk for experiencing downtime.
   
   Through using the cheqd network and asymmetric key sharding techniques, we have been able to decentralise decryption keys and use smart contracts for access control on the network. Thus, only the verifier is able to access a particular credential status after making a payment. 
   
   
3. It creates a systematic market for data sharing: Through focussing on both privacy and decentralisation, we have been able to create the architecture to build systematic markets for data sharing, leveraging digital credentials. This allows individuals or organisations to “Pay to Trust” each other, creating a sustainable commercial model for digital credentials, providing a concrete incentive to build trust. 

This model can apply to any industry vertical exploring the issuance of digital credentials, which will become increasingly prevalent alongside emerging regulations such as eIDAS 2.0 (discussed later).

Regulated Payment Schemes

Recently, we have been exploring payment flows for regulated industries, where the $CHEQ token is used for customisable commercial models alongside a stable currency, e-money token, CBDC or fiat currency.  We have centred this work around the creation of “Regulated Payment Schemes” for large financial services, existing consortia or existing ecosystems exploring Verifiable Credentials.

Using cheqd Payment Schemes, we can bring the benefits of credential payments to consortia or “federated” payment schemes, bringing them up to date with the latest technologies – and providing them a clear commercial model. We will be writing a separate blog around this topic over the coming months.