We are all connected. Ever since the American social psychologist Stanley Milgram proved with his small-world experiments in the late Sixties that every human being is inevitably linked to each other by surprisingly short chains of connections, we know about the importance of social networks. We also know that networks not only play a significant role in social interaction, but rather all over our physical and mental world. They allow a virus or gossips to spread. They can be used to display protein-protein interaction networks as mathematical representations of the physical contacts between proteins in the cell. It is in the nature of things to position itself or allocate resources in networks. The typical network characteristics and effects can also be made accountable for the emergence and spread of the internet. Being connected is one of the most important qualities in today’s world. In our understanding of digital business, network effects are key to success. But there is a second side to this coin. Network effects can also encourage unfortunate developments. Alike the unstoppable spreading a bad virus or cancer, networks such as the internet can also evolve along wrong paths.

Today, the leading revenue models of digital businesses are based on advertising. It is evident that the economic engine of the world wide web is privatized and monopolized to a great extent. Monopolistic companies have emerged as giants in their space. Facebook, Google, Tencent, Airbnb and numerous other leaders of the pack have created own, proprietary platforms in the form of digital ecosystems in their markets. They collect and analyze the wealth of data their users produce when accessing their websites, communicating on their platforms and in many more occasions. All these data points together create the user’s digital identity.

Most of the success stories in digital business have one thing in common; they are all enabled by data. The mechanism behind this phenomenon can be explained in only a few sentences. Constantly improving algorithms lead to digital products and services. When done right, these data products add value to the customer. This perceived value added will convince customers to provide even more data. The use of data products itself leads in this perfectly closed loop to an ever-increasing wealth of transactional and behavioral data. All that data can be monetarized which causes profits to surge. Unfortunately, there is a worrying imbalance between giving and taking. Customers more and more understand this issue and demand for more reciprocity. They recognize the value of their personal data. Empowered with new technological means and knowledge, they start to better protect this data. An even bigger effect on existing data-driven business models is to be expected by interventions from regulators. The latter are also increasingly concerned at what they see as a growing imbalance between data-dependent companies and individuals (Nguyen et al., 2013). This is why the European Commission will finally introduce its “regulation on the protection of individuals with regard to the processing of personal data and on the free movement of such data (General Data Protection Regulation)” in May 2018 (European Commission, 2012).

All this leads to the hypothesis that the area of living in a land of milk and honey is coming to an end for the large players in the digital economy. The newly emerging web is characterized by fundamentally different mechanisms, it’s about multiple nodes sharing value across an open network. Companies like Facebook are already anticipating this change. They are restlessly on the search for other revenue models apart from data monetization through advertising. But this is another story. Before painting a picture of the future and outlining solutions, we need to ask ourselves; How did it come to this?

The answer to this question can be found in a simple fact:

“The Internet was created without an identity layer”.

This increasingly popular quote from Kim Cameron, Chief Architect of Identity for Microsoft, leads to the root cause that can make network effects a counterproductive force. Although the triumphant progress of the internet brought the information age to a new level, it led digital business models towards the described impasse. Whereas the Hypertext Transfer Protocol (HTTP) as the underlying protocol used by the World Wide Web lead to unpanelled, successful growth of the internet, the web community missed to establish an adequate system to assign and verify identity. The way the internet works is fundamentally different than identity on the web works. The latter is a network of connected devise. Each of these devices connected to a network are centrally assigned a numerical label, the Internet Protocol address. Instead of identifying human beings as endpoints on the network, the system connects physical devices. That’s why it is nearly impossible today to uniquely identify people and authenticate their messages. In addition, we currently define and authenticate accounts that are not necessarily tied to real people or organizations. We do this often separately for each service. For the sake of convenience, we even allow the giants like Facebook or Google to authenticate our identities on third party platforms. This all leads to the unfavorable side effect that online identities can dramatically differ from real world identities and that information spread in digital communication might not be true. To better describe this phenomenon, politics has established all new expressions such as “alternative facts” or “fake news”.

A certain degree of anonymity in digital communication is not harmful by nature. Anonymity may lower barriers to engage in discussions and therefore to participate in a network. It can support the rapid growth of networks and with that it’s positive externalities. This effect describes the fact that an additional node in a network has a positive effect on the value of this network to others. Anonymity is also what drives the success of many use cases on the blockchain. The Bitcoin is one of them. Due to inherent anonymity, the most prominent among the broad range of new cryptocurrencies is also used for shady transactions. Without anonymity, the rapid adoption of the Bitcoin would not have happened and its value would be much lower.

Another aspect that sheds a bad light on anonymity is the popular assumption that online anonymity is one of the principle factors that promotes aggression. This must not necessarily be the case. Anonymity can produce the “stranger on a train” phenomenon, wherein people share intimate self-disclosures with strangers as they do not expect a reunion and hence do not fear any risks and constraints (Bargh et al., 2002). Recent studies in social norm theory show that in the context of online firestorms, non-anonymous individuals are more aggressive compared to anonymous individuals (Rost et al., 2016). When introducing an identity layer for the web the major focus should therefore not lay on making anonymity a thing of the past. It should rather lay on enabling and supporting authenticity and eventually data veracity. In this context authentication can be defined as the act of confirming the truth of an attribute. If we were able to more easily and reliably authenticate data on the web, the degree to which data we use to make decisions is accurate, precise and trusted will be much higher.

Another side effect of the missing identity layer on the world wide web is the fact that personal data is easily accessible for service provider and that this data can be monetized without a clear consent and without remuneration of the owner. Dealing with personal data is complicated and gets more and more toxic for companies of all industries. Here is why:

There is a common understanding of the strategic thrust mandatory to further develop digital business models: “A new approach to personal data is needed that is flexible and adaptive to encourage innovation, but also protects the rights of individuals. Notice and consent need to be reconsidered to be equipped for this changing world.” (WEF, 2013). Extracting insight from consumer data requires respectful and farsighted handling of personal data. A first step on this approach is to establish a new paradigm to manage digital identities. Alike the handling of personal data, the control about identity needs to be brought back to the individual. Individual identity shall have administrative autonomy regardless of its location in digital space.

Many interesting attempts in this direction have been made in the last years. Among them are trust networks such as the Secure Access For Everyone (Safe) network (https://safenetwork.org) or the respect network. The latter globally launched its platform in 2014 with a line-up of around 50 founding partners, including Neustar, Swisscom, and NEC. In a nutshell, these trust frameworks provide a set of guidelines, rules and tools together with an assessment and enforcement infrastructure that operationalizes them. In addition, trust networks usually rely on decentralized concepts for data storage. The individual itself shall own its data using Personal Data Services or Personal Data Stores (PDS). These are services that let the individual store, manage and deploy their key personal data in a highly secure and structured way.

However, despite all efforts and well-intentioned ideas, it is a cumbersome endeavor to establish such a new type of contract that may legally bind the members of the trust community to the policies. It is therefore, not a big surprise, that many attempts have failed so far to get traction and eventually to establish a well anticipated industry standard.