Ultimately it's the court system that backs up identity. Ideally you never end up there, but its existence is what holds society together. That's where identity

Ultimately it's the court system that backs up identity. Ideally you never end up there, but its existence is what holds society together. That's where identity matters: where you're held to account for previous actions, such as contracts you've agreed to. Your identity in front of the judge has to be the same as the identity that entered into a contract. This is crucial for enforcement. If both parties to a contract cannot trust that this will happen, then a contract isn't useful to them, and business cannot take place. For this to work, your digital identity needs to be something that the courts will directly accept as your personal identity. The fact that it is currently indirect is what causes all the problems. For example, nobody knows if some digital identity (eg. SMS verification proving ownership of a phone number) is tied 1-1 with a natural person. When companies assume it is, that's where the crack can get opened by fraudsters. The only way to fix is this for the courts to be able to _directly_ trust an authority that issues digital identities. The only such issuer I can see working is the government. In the US I suppose that could be a state government or the federal government, since courts (whether state or federal) will generally be able to trust digital identities issued by the other. But I don't see how this can be fixed by anyone _other_ than governments. Having said that, I suppose it might be possible for credit agencies to issue digital identities. I haven't thought this possibility through.