Blockchain Startups Collecting Personal Data in the Developing World Make No Commitment to Privacy

March 27, 2018

At at a recent sold-out “Blockchain Social” event in Toronto, the CEOs from two data collection start ups presented plans to use blockchain technology to document millions of citizens in Asia, including migrant workers.

But both Duncan Brown of Distributed ID and Sankalp Sanghari of LALA World failed to outline clear plans to protect client privacy.

Brown, who hails from the Toronto region, is now collaborating with Chinese anti-fraud software provider Tong Dun in China. There, the two companies are testing a blockchain- and cellphone-based anti-fraud system on 20 million users.

According to Mr Brown, the system uses “multiple touch points onboarding info” to create profiles of users' credit-worthiness.

China’s recent economic leap has meant that many citizens there have moved directly into mobile-transacting without ever having engaged in the slow, traditional credit-building processes familiar in the west.

Mr. Brown’s system seeks to develop and provide credit portraits of users by incorporating data flow from payment and online sources to, “…create behavioural identities that change as your users do.”

When I asked Mr. Brown about privacy in an audience Q&A session, he stated, “Privacy is a function of consent,” and moved off the question.

Similarly, Sankalp Sanghari's firm LALA World, in partnership with Bestinet Sdn Bhd, an IT firm “with offices in 20 labour-sending countries,” is already connecting Malaysian migrants to the company’s “ecosystem” of financial and ID services using smartchip-loaded cellphones.

At the Toronto presentation, Sanghari said migrants are receiving the phones now for free at mandatory government-sponsored orientations in Malaysia. Sanghari added that migrants are obligated by the government to accept the phones.

Sanghari, formerly of Deutsche Bank and JP Morgan, says the cellphones are being paid for by the Malaysian government and through advertising. He said the phones also enable use of a dedicated cryptocurrency and are also loaded with standard currency-enabled mobile software wallets.

One feature of cryptocurrencies is that all transactions are recorded permanently and immutably through layered encryption. "Blockchain records" can also often be perused by anyone.

Sanghari said recipients at the orientations are urged to use their new phones to contact five relatives and prompt them to also download LALA payment software onto their own phones. Doing so means that relatives' data is also onboarded onto LALA systems.

Loyalty to the LALA system is encouraged through a rewards program, and users can send money home through their phones. “We have signed an agreement with Malaysia that all migrants must be on the LALA wallet,” said Mr Sanghari.

Globally, the need for ethical identity solutions and cost-effective financial services is high. Over two billion people currently have no access to banking and over a billion have no government-issued ID. This renders them, said Sanghari, “…illegal everywhere they go."

Since the advent of Bitcoin, many companies have been excitedly studying tamper-resistant blockchain databases as a possible way to extend banking services across cellular and internet networks.

Some believe Bitcoin and other systems could enhance financial access in places where providing physical brick-and-mortar banking is cost prohibitiCertain governments and private companies, meanwhile, are keenly investigating what blockchains might do to enhance efficiency and security and reduce costs by automating services traditionally provided by third parties, such as escrow. The potential of blockchains to remove third parties is fondly referred to in the sector as "disintermediation."

But intermediaries like stock trade clearing houses claim they perform important oversight functions that should not necessarily be scrapped or automated.

Mr. Sanghari’s company began as a lending firm but now, “…own(s) the world’s largest migrant-management system: visa, health check…KYC (know-your-customer checks).” Sanghari says LALA World is now “present in ten countries,” employs over forty-five blockchain developers in India and boasts fifty global partnerships. “Five million (individuals) will be going onto the wallet in Azerbaijan,” he said.

But creating digital IDs for previously-undocumented persons has implications for their privacy. Sanghari said his wallets will incorporate “a hundred thousand data points” --behaviour-profiling digital breadcrumbs dropped when users shop, communicate, bank, cross borders, research or recreate online.

Mr. Sanghari stated that LALA World users’ data, for example, will be used to determine whether they qualify for loans. “If you are typing at one AM on the Internet," he said, "(the system) downgrades your score."

Duncan Brown compared his product to AliBaba’s Sesame Credit program in China. Sesame Credit is now using data to create social credit scores for users that either streamline or obstruct their access to public and private services.

A person flagged for behaving badly on public transit in China, for example, can reportedly be denied access to public transportation for up to two years if their social credit score gets low enough.

The Alibaba system evaluates many aspects of behaviour and calculates a score ranging from 350-950. According to Wired, obscure data indicating the "prudence" of a person’s choice of friends and the “pleasantness” of opinions expressed online (including opinions expressed towards government) are all legitimate measures of a citizen's "sincerity" and may be used to create scores.

The Chinese government reportedly seeks universal implementation of this social credit system by 2020.

Extending identity and finance services in the developing world is often portrayed by industry players as a moral imperative. In a 2017 article published in Forbes, consultant Dante Disparte wrote, “Without basic personhood, essential services, such as healthcare, education and political presence, along with safe passage through the world’s borders, consigns mostly women and children to the vile practice of human trafficking.”

But documenting and banking two billion underserved global citizens is also a huge business opportunity. The global data sales market, described as "loosely-regulated," is currently worth upwards of $200 billion -and is growing fast.

In the wake of the Cambridge Analytica scandal, the public now understands that data mined on Facebook was used to manipulate election outcomes, a possibility many were unaware of until after the fact.

In his talk, Mr. Sanghari referred to a well-known episode of the dystopian science-fiction TV series Black Mirror.

In the episode titled ‘Nosedive,’ a naive protagonist is eventually so downgraded by a digital social rating system that she ends up bereft and in prison. “It’s scary…and we’re trying to make it scarier,” Mr. Sanghari joked.

When I contacted Sanghari to ask him to clarify his statements regarding client privacy, he referred me to his marketing department and wrote, "These are just comparisons of various tech and various things out in the market today. We are trying our best to develop a great product for the unbanked markets.”