The blockchain protocol that has put digital identity at the heart of its strategy

Key Insights From This Interview

Regulation is coming to blockchain, and blockchain protocols that cannot adapt to regulation will not succeed in the long term. One way to make a blockchain adaptable is to build digital identification into the protocol, so that any applications built on the Layer 1 blockchain can incorporate customer, supplier and counterparty identity verification into them with ease.
Successful blockchains will cease to be the preserve of entrepreneurs who began as coders tinkering in garages and got lucky but built businesses on software which is unstable, vulnerable to hackers and impossible to scale. Instead, the successful blockchains will be based on scalable software that operates to a zero-downtime discipline.
Concordium overcomes the speed and scalability constraints of classic blockchain protocols by a Proof of Stake model in which a sub-set of nodes (called “bakers” rather than “miners”) subject to a two thirds quorum finalise transactions. Further increases in transactions per second will follow adoption of a variant of the HotStuff consensus protocol and sharding.
To counter the governance problems that are now associated with Proof of Stake blockchain protocols, Concordium is run by a governance committee that must approve changes to how the blockchain works. However, it is working with ETH University in Zurich on an enhanced governance body which is likely to be democratically elected.
Adoption of Decentralised Autonomous Organisations (DAOs) reliant on smart contracts of the kind Concordium is developing are testing the boundaries of company law and the current tri-partite choice of corporate vehicles (limited liability companies, partnerships and cooperatives) and will need time to be fully developed and adopted widely.
The Concordium digital identity capability is based on an analogue document checking and verification process run by specialist service providers which will issue digital identities (digital IDs) to corporates and consumers. The digital IDs protect privacy by enabling users to disclose only the information needed to complete a particular transaction.
In line with its commitment to regulated status, the Concordium digital ID also enables regulators to access details of an individual or company behind a transaction via cooperation between a group of law firms that act as “anonymity revokers.” This ensures that no single party can ever breach the privacy defences of the holder of a digital ID.
The use of digital IDs to facilitate transactions in decentralised applications (Dapps) such as those used in the Decentralised Finance (DeFi) industry are likely to accelerate their adoption because of the convenience to both companies and consumers of undergoing a due diligence process once only and satisfying regulatory obligations in an automated fashion.
Concordium does not regard being an open, public, permissionless blockchain as a fatal inhibitor of institutional engagement with its protocol because there is an ample number of use-cases for non-permissioned networks – such as replacing wet signatures on multi-party documents – that are useful to institutional as well as retail users.
Concordium has issued a native cryptocurrency (CCD) on to its blockchain, to incentivise “bakers” to finalise transactions. To counter the depreciation of CCD as fresh coins are minted to reward bakers, holders are given access to staking and lending opportunities to generate a yield. The digital ID functionality, by spreading trust, will expand these opportunities.
To guard against hackers exploiting vulnerabilities in its “bridges” to other blockchain protocols, Concordium uses manual reviews, analysis of code using software tools and the services of smart contract auditors. It is also working with a research group at the University of Aarhus on other methods of assessing and verifying smart contract codes.
Uses-cas identified by Concordium for its Layer 1 blockchain include (obviously) digital IDs, tokenisation including NFTs and SBTs, automated market-making, borrowing and lending applications in DeFi, Internet of Tngs (IOT), supply chain traceability and settlement for ESG compliance, insurance contracts and GameFi.

Concordium is a Layer 1, Proof-of-Stake blockchain with its own cryptocurrency. So far, so normal. But Concordium also has a fascinating twist: it incorporates digital identification functionality at the level of the protocol. If predictions of the eventual universality of digital identity are even half-fulfilled, this feature will give Concordium an edge over other Layer 1 blockchains as the digital economy makes use of more efficient, privacy-protecting methods of customer due diligence. The company has raised US$50 million from a small group of investors, whose number includes Lars Seier Christensen, co-founder and until 2016 co-CEO of Saxo Bank, who has identified blockchain as a forcing house for entirely new ways of doing business. Concordium also benefits from its relationships with Aarhus University in Denmark and ETH University in Zurich, where academic researchers are working not only technical issues but also on the governance issues which have plagued Proof of Stake blockchains. Dominic Hobson, co-founder of Future of Finance, spoke to Kåre Kjelstrøm, a veteran of Travis Kalanick start-ups Uber and Cloud Kitchens, who is now chief technology officer at Concordium.

A full recording of the interview is available on this page. A transcript of the interview, which follows the questions below, is also available if you click on “Read the Transcript.” If you click on any question you will be taken to the exact point in the recording where the question is asked and answered.”

Read the Transcript

What is the history of Concordium?

Your own background is not in blockchain. What experience and insights do you bring to the task of building a layer 1 blockchain?

Concordium works closely with universities. Why?

One feature of Concordium is an integrated digital identity functionality. Why is that important?

The digital ID functionality depends on partnerships with digital ID vendors and law firms acting as “anonymity revokers.” What services do they provide and how do the relationships work?

Are you optimistic that digital IDs will be widely adopted in the near future?

Will consumers and corporates own and maintain their digital IDs themselves or rely on service providers?

How has Concordium overcome the speed and scalability shortcomings of blockchain?

Concordium is an open, public, permissionless network. Does that preclude you working with institutions or does it mean your model satisfies institutional concerns about open, public, permissionless blockchains?

Concordium has chosen a Proof of Stake model. How can you (or your users) prevent the governance problems which afflict Proof of Stake models?

Do you believe DAOs provide a genuine alternative to limited liability companies and unlimited liability partnerships?