EU Digital Wallets and Legal Identification
A new digital revolution is on the horizon.
last April, the European Union approved a regulation updating the digital identification of legal entities (citizens and organizations), which is now in effect for all member states. This regulation is significant as it will have profound social and economic implications, establishing a crucial foundation for the self-execution of web3 in the incumbent economy.
It all begins with the fifth consideration of the regulation: “Union citizens and residents in the Union should have the right to a digital identity that is under their sole control and that enables them to exercise their rights in the digital environment and to participate in the digital economy”. Until now, consumers in our geopolitical space have been required to maintain multiple digital identities to navigate the world of the web and apps. In current digital transactions, each communication channel requires the creation of a specific identifier, such as an email address, where the legality of transactions is ensured through bilateral contracts. The “I have read and accept” checkbox is a prime example, and there are instances where signing paper contracts is also necessary, which is common in the financial sector. The only exception has been the digital mobile key, which allows interaction primarily with various public sector entities and some banks. The mobile key thus serves as a legal identification common to all organizations that accept it and is managed by legally mandated public entities. The new regulation extends legally registered digital identification to all digital interactions. Notably, the mobile key works with the legal record safeguarded on the citizen card.
This is an extremely ambitious step as it significantly contributes to the application of web3 to the regulated economy, positioning the EU at the forefront of the Western world.
Digital Wallets for Everyone
Digital interaction between legal entities has become commonplace for decades, exemplified by simple payments with the fantastic MBWay in Portugal or with classic debit cards. However, even in these cases, the legal identification underlying the digital identity used is unique to each provider of the respective financial services and can only be used within the context of their transactions, such as each payment. The updated EU regulation will allow each legal entity to store their digital identification in their own wallet, which will have legal value for any digital transaction. This scope extends to anything legally possible within the context of each service provider, far beyond simple payment methods. The most interesting aspect is that these wallets will blur the boundaries between the virtual web world and physical interactions, something only Super Apps have managed to do so far.
Thus, each legal entity, whether individual or collective, will own their wallet, and the binding method will be exactly as legally defined, such as the number of signatures mentioned in the organization’s permanent certificate. For individuals, only their signature will be required. Naturally, the guardians of all these rights will be the public entities mandated to manage the entire system, similar to the current digital mobile key.
It is worth noting that privacy concerns under the well-known GDPR are integral to the regulation, safeguarding consumer data even from the managing entities.
Efficiency that Creates Economic Value
Anything that contributes to the economy’s efficiency is strategic. The success of the web from the mid-90s is based on the ease with which consumers could communicate with each other, including businesses and other organizations. However, communicating is one thing; transacting is entirely different. For example, we can use WhatsApp to communicate, including with companies, but we are prohibited from executing legally recognized transactions on this app. In China, WeChat is a Super App that allows this, as all transactions require a qualified signature equivalent to our digital mobile key. With the new EU regulation, we can imagine using a legal identification similar to the digital mobile key through any digital channel, including WhatsApp, the web, and web3. This will be one of the necessary pillars for the Portuguese national web3 strategy, as this legislation has been anticipated.
How this regulation will be implemented, the underlying opportunities for all businesses with digital channels (virtual or not), and the implications for the national digital strategy will naturally be topics for future discussions. It is time to start dreaming and building the future and an admirable digital universe of wallets with legal value.
