Blockchain Tech Can Verify Credentials, but Beware Credentialism

Stephanie Hurder, a CoinDesk columnist, is a founding economist at Prysm Group, an economic advisory focused on the implementation of emerging technologies, and an academic contributor to the World Economic Forum. She has a Ph.D. in Business Economics from Harvard.

As the world prepares to return to work and school following the coronavirus crisis, the essential role that credentials play in the labor market is coming into view. Millions of workers who permanently lost jobs and thousands of students attending colleges that may close forever will be in search of new opportunities. And they will rely on credentials to attest to their skills and experience.  

Credentials can be almost anything: degrees, diplomas, certificates, licenses and so on. What they have in common is that a known third-party issues them, and they indicate the credential holder has specific qualifications or authorizations. This can include passing a test, earning a degree, completing a project or program or having been accepted as a member of a profession.  

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People acquire credentials because they believe the credentials will improve their job or school opportunities. For a credential to be effective in doing so, it must meet three criteria. First, some set of decision-makers (schools, employers, etc.) understand the skills or experiences the credential represents. Second, the information conveyed by the credential causes these decision-makers to offer a better job, admission to a program, more money, an interview instead of a rejection and so forth. Third, the decision-makers should be able to verify the credential is legitimate.    

If you’re here on CoinDesk, you may already see where blockchain adds immediate value to credentials: verification. Many credentials still require painful and time-consuming processes to certify their authenticity, such as calling colleges and universities on the phone, tracking down former employers or waiting for embossed paper copies to arrive in the mail. Former students of defunct colleges rely on an ad-hoc network of third-party clearinghouses, state school boards, law firms and other universities to validate their degrees. 

With blockchain, there is no need for the intermediary. The credential holder shares an electronic record with whomever they want, and the recipient uses software to verify that it’s legitimate. A distributed ledger reduces the risk that records will suddenly disappear because the database custodian goes out of business. Cryptographic solutions like zero-knowledge proofs can enable credential holders to specify which documents to reveal to whom.  

Blockchain creates unambiguous value for employees and students: it can decrease the cost of verification, reduce administrative delays, prevent fraud and make applying for jobs and additional schooling that much easier. 

But the introduction of blockchain-based credentials also allows a dangerous temptation: credential proliferation.  

Non-degree credentials, such as badges and certificates, in particular are rapidly multiplying because they can now be digitally transmitted and verified at a minimal cost. For example, Central New Mexico Community College introduced blockchain-based micro-credentials in eight “21st Century Skills,” including initiative and empathy. 

The United States labor market is in a disastrous state, and the impulse to go all-in creating new credentials that might help displaced students and workers is understandable. However, introducing an avalanche of new badges and certificates may perversely result in credential providers destroying their own business.  

Consider the rise and deflation of coding bootcamps. Introduced in the early 2010s, coding bootcamps promised to help remedy the shortage of coders through intensive, three- to six-month training programs. And many did. App Academy, General Assembly and Hack Reactor provided quality instruction, complimentary resume coaching and job search support. 

Because of these early successes, the number of bootcamps exploded. But many of these new entrants were low quality, riding on the coattails of the pioneers, and soon skepticism grew about the quality of training these programs provided. Employers, unsure which bootcamps were good or bad, sometimes refused to hire graduates of bootcamps at all.  

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Similar pitfalls await those who plunge too quickly into inventing and issuing a large number of blockchain-based credentials. Studies of the value of credentials show the economic benefit varies widely. Often employers are unaware of which non-standard credentials are available, how they are relevant to the workplace and why they would be useful for hiring. Bombarding employers with credentials that they aren’t familiar with and don’t understand is most likely to result in the lot being summarily ignored.

Even more concerning, allowing credential proliferation opens the door for predatory practices similar to those conducted by for-profit colleges and universities.   

Despite the risks of credential proliferation, I am hopeful about the potential value of blockchain-based credentials. There is a significant need to make transferring schools and changing jobs as seamless as possible.  

However, to maintain credibility, blockchain-based credential providers will need to make some careful economic choices. Here are three recommendations:

Jumping straight from introducing blockchain to creating new credentials misunderstands the value that blockchain provides. Blockchain itself does little to help decision-makers understand what a credential signifies or manage how that information is used in hiring and admissions. Using a blockchain doesn’t reduce the need for the long, involved advocacy process, undertaken by Opportunity@Work and other organizations, of working with employers to expand the set of credentials that are valued in the hiring process.  

In contrast, enabling verification of existing, high-value credentials such as bachelor’s degrees and legally required licenses provides value almost immediately, as high-value credentials are the most likely to be falsified. The process of creating new credentials can then proceed slowly, taking advantage of emerging data to establish new credentials’ value and communicate this in a sustainable way to employers.

The coding bootcamp industry, facing the significant reputational damage discussed previously, voluntarily embraced regulation. A consortium of bootcamps pledged to regularly report standardized data of their graduation and job placement outcomes. General Assembly, an industry leader, publicly spoke about how oversight by the State of California improved its operations.

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Blockchain-based credentialing services face similar systemic risks, and thus may also need to embrace regulation strategically. A credential provider that falsifies data in exchange for bribes, or provides misleading information about the value of credentials, will damage the reputation of the industry as a whole. Establishing industry-wide best practices can lessen the impact of these bad actors and improve the prospects of the industry as a whole. 

Simplicity and usability need to be a priority in product design. The mental and physical stresses on those who have lost jobs or had to leave school due to the coronavirus are significant. According to research by the Hope Center for College, Community and Justice at Temple University, more than 10% of college students have experienced homelessness during the COVID pandemic and approximately 40% have experienced food insecurity. The last thing anyone wants to do when navigating the current economy is to keep track of public-private keys.   

Monetization strategy also needs to take a long-term view. The organizations and individuals that will need the most help managing credentials – bankrupt schools, individuals let go from jobs, businesses closing – will have least money to spend on new technologies. Being creative with funding, delaying the requirement for profit, and investing in partnerships can provide genuine social good while setting the stage for network growth.