System and method for secure electronic transactions using government-issued identification and distributed ledger technology

Abstract

A method for registering an identification document or biometric identifier for use in distributed ledger-based payments, comprises receiving user registration information based on government-issued d

Description

FIELD This invention pertains to the domain of electronic payment systems and digital identity verification, specifically a method and system for leveraging government-issued identification documents or biometric identification in conjunction with distributed ledger technology to facilitate secure financial transactions. BACKGROUND Current electronic payment systems have evolved from traditional methods to digital solutions, including credit cards, mobile payments, and cryptocurrencies. However, these systems often suffer from security vulnerabilities, lack of interoperability, and limited accessibility, particularly for unbanked populations. Additionally, they frequently require users to manage multiple devices, credentials, and platforms for different transaction types, leading to increased complexity and potential security risks. Concurrently, many countries have implemented digital national identification systems, some incorporating smart chips or biometric data. These identification systems, primarily used for verification purposes, have not been fully integrated into payment ecosystems. Distributed ledger technology, particularly blockchain, has emerged as a secure and transparent method for recording transactions. However, its adoption in everyday payment scenarios has been limited due to complexity and lack of integration with existing identification systems. This invention integrates government-issued identification with distributed ledger technology to create a unified, secure, and efficient payment system. Unlike existing systems that rely on extensive user onboarding processes or require integration with multiple service providers, this invention introduces a novel user authentication protocol that seamlessly links government-issued IDs with distributed ledger wallets through a cryptographically enforced connection. By reducing reliance on intermediaries and minimising onboarding complexity, the system offers a streamlined user experience. The invention’s innovative approach also underscores its novelty and effectiveness in addressing financial exclusion by providing underbanked individuals with direct access to the global digital economy through a user-friendly and highly secure protocol merging government-issued digital identification and distributed ledger technology. The combination of these technologies creates a transformative solution for financial inclusion and offers a new, effective pathway for financial empowerment. SUMMARY The present invention provides a novel and non-obvious solution to the critical challenges of financial inclusion, transaction security, and system interoperability by uniquely integrating government-issued identification directly with distributed ledger technology, including blockchain-based payment infrastructure. This groundbreaking system not only bridges the gap between the unbanked population and the modern financial ecosystem but also enhances the security and efficiency of electronic transactions for all users. It offers a secure, efficient, and user-friendly electronic payment solution that requires no traditional bank account, while simultaneously providing advanced security features and cross-chain compatibility. Unlike existing systems that may use blockchain or government ID separately, our invention creates a synergistic combination that results in a payment system specifically designed to promote financial inclusion. By leveraging the widespread availability of government-issued ID chips and cards and the accessibility of blockchain technology, this invention provides unbanked individuals with immediate access to the global digital economy. Key aspects of the invention include: 1. The system establishes an innovative and novel direct link between a user's government-issued ID and a blockchain or distributed ledger wallet, eliminating the need for a traditional bank account. 2. By utilising existing government ID infrastructure, the system can be rapidly deployed even in regions with limited traditional banking services. 3. The invention enables unbanked individuals to participate in the digital economy, receive payments, and store value securely without relying on physical cash or informal financial services. 4. The combination of government ID verification, distributed ledger technology and blockchain technology, provides a robust security framework, protecting vulnerable populations from fraud and financial exploitation. 5. The system implements advanced cryptographic techniques, including zero-knowledge proofs and state channels, to enhance transaction privacy and scalability while maintaining the highest levels of security. This invention addresses the long-standing global challenge of financial exclusion in a way that would not have been obvious to those skilled in the art. By reimagining the relationship between government-issued identification and blockchain technology, our system creates a new paradigm for financial inclusion that has the potential to dramatically improve the economic opportunities and quality of life for billions of unbanked individuals worldwide. BRIEF DESCRIPTION OF THE DRAWINGS The present invention will be better understood from the following detailed description, taken in conjunction with the accompanying drawings, wherein like reference numerals refer to like parts, and in which: FIG. 1 is a block diagram illustrating the overall system architecture of the distributed ledger blockchain-based payment system utilising government-issued identification. The diagram shows the key components and their interactions, including: • The Government-Issued Identification Document, Card or Biometric Chip, which serves as the primary means of user authentication. • The Reader, responsible for extracting data from the Identification Document, Card or biometric chip. • The Authentication Server, which verifies the authenticity of the extracted data, users authorisations and settings. • The Distributed Ledger Technology as Blockchain Network, where transactions are processed and recorded. • User Interfaces, allowing users to interact with the system and manage their accounts. FIG. 2 is a flowchart depicting the process of registering an identification document for use with the payment system. The flowchart illustrates the sequential steps involved: • User initiates the registration process. • User inputs necessary information. • The system performs identity verification. • User's blockchain wallet is linked to their verified identity. • User sets up allowance parameters and limitations. FIG. 3 is a sequence diagram showing the steps involved in processing a payment transaction using the identification document and blockchain system. The diagram illustrates the interaction between: • The User, who initiates the transaction. • The Reader, which captures the identification data. • The Authentication and Authorisation Server, responsible for verifying the data. • The Distributed Ledger Technology such as Blockchain, where the transaction is executed and recorded. The arrows indicate the flow of information and actions between these entities during a typical transaction. FIG. 4 is a schematic representation of the data structure within the smart contract. The diagram shows: • The Smart Contract as the central element. • Allowance Settings, which define transaction limits and conditions. • Transaction Records, where the history of transactions is stored. This structure enables the automated execution of transactions based on predefined rules and maintains a transparent record of all activities. FIG. 5 is a user interface mockup showing how users can manage their payment settings, view transaction history, and authorise payments. The interface is divided into several sections: • A header displaying "User Dashboard" at the top. • A "Payment Settings" section on the left side. • A "Transaction History" section on the right side. • An "Authorise Payment" section at the bottom. This layout provides users with a comprehensive view of their account and easy access to key functions. FIG. 6 is a diagram illustrating the security measures implemented throughout the system. The diagram shows: • "Security" as the central focus. • Four key security elements radiating from the centre: 1. Encryption, ensuring data privacy during transmission and storage. 2. Blockchain Features, leveraging the inherent security of distributed ledger technology. 3. Secure elD Element, protecting sensitive data within the identification document, card or chip . 4. Multi-Factor Authentication, adding layers of verification to enhance security. This comprehensive security approach safeguards the system at multiple levels, from individual components to the overall network. DETAILED DESCRIPTION Advantages over Prior Art While individual elements of this invention, such as distributed ledger technology, blockchain-based payments or the use of government ID in digital transactions, may be known separately, the present invention offers several key advantages through its unique integration: 1. By combining the immutability of distributed ledger technology with the trusted nature of government-issued ID and multi-factor authentication, the system achieves a level of security that surpasses existing payment solutions. 2. The integration of customizable smart contract allowances with government ID provides a unique solution to the challenge of transaction limits and product type and category controls. This approach offers unprecedented flexibility and security that is not found in existing payment systems. 3. Unlike many existing digital payment systems, the invention uses advanced cryptographic techniques to ensure that user privacy is maintained even while leveraging government-issued ID. This balance of authentication, customisation and privacy represents a significant advancement in the field. 4. The invention's unique implementation of state channels in conjunction with government ID verification represents a significant advancement in blockchain scalability and transaction efficiency. This novel approach allows for high-throughput, low-latency transactions while maintaining the security guarantees of the underlying blockchain. System Components 1. Identification Document with Unique Number, Secure Chip Element or Biometric Identifier 2. Multi-Modal Identification Reader (supporting NFC, RFID, or document scan) 3. Authentication, Authorisation and Tokenization Server 4. Distributed Ledger Smart Contract 5. Distributed Ledger User Wallet 6. Interoperable Payment Processing Network 7. Al-powered Fraud Detection and Risk Assessment Module 8. Cross-chain Compatibility Layer Process Flow Initial Registration and Account Linking 1. User initiates registration through a secure portal or mobile application 2. System verifies user identity through multi-factor authentication, including card or document verification, biometric verification, and government-approved digital signature 3. User provides distributed ledger wallet address 4. User sets up customizable allowance parameters for smart contract: a. Maximum allowance amount (can be dynamic based on user-defined rules) b. Granular controls for allowance period (per transaction, daily, weekly, monthly) c. Merchant-specific or category-specific limits 5. System generates a secure allowance transaction for user authorization 6. User signs the allowance transaction using their private key 7. Allowance details are securely stored and encrypted in the smart contract Enhanced Payment Process 1. User presents identification document or biometric data to the multi-modal reader 2. The reader extracts a unique identifier from the ID chip or visual elements, such as a QR code or machine-readable text, on the identification card. It then generates a cryptographically secure, one-time-use token based on the extracted identifier. This token ensures that the identifier is used solely for the current transaction, enhancing security by preventing reuse and protecting the user’s sensitive information from unauthorised access or replication. 3. Token is securely transmitted to the Authentication, Authorisation and Tokenization Server 4. Server verifies the integrity and authenticity of the identification data and confirms the document's registration status 5. Server initiates a state channel for the transaction, reducing on-chain load and enabling near-instantaneous transaction processing 6. Based on predefined allowance settings, the user may need to provide additional authorization (e.g., biometric confirmation, OTP) 7. Authorization is securely relayed to the smart contract 8. Smart contract executes the transaction 9. Transaction details are recorded on the distributed ledger 10. Real-time confirmation is sent to both merchant and user Advanced Security Measures 1. End-to-end encryption with post-quantum cryptography for all data transmissions 2. Secure element in identification document for storing sensitive cryptographic data 3. Multi-factor authentication (identification document + biometric + optional additional factors as PIN) 4. Zero-knowledge proofs for enhanced privacy in transaction verification 5. Distributed ledger's inherent security features (immutability, consensus mechanisms) 6. Al-powered fraud detection system monitoring transaction patterns 7. Implementation of state channels for off-chain transaction processing, enhancing privacy and scalability 8. Quantum-resistant cryptographic algorithms to future-proof the system against potential quantum computing threats Interoperability and Scalability 1. Integration with existing payment networks for seamless adoption 2. Advanced cross-chain compatibility layer utilising atomic swaps and interledger protocols, enabling seamless interaction across multiple distributed ledger networks and traditional financial systems 3. Layer 2 scaling solutions for high transaction throughput and reduced fees 4. API framework for third-party service integration and ecosystem expansion User Experience Enhancements 1. Intuitive application for managing allowances, transaction history, and preferences 2. Customizable alerts and notifications for transaction monitoring Preferred Embodiment In the preferred embodiment, the system employs a novel approach to transaction processing that significantly reduces the unbanked population. This is achieved through a unique implementation of state channels that work in concert with the government ID verification process. Identification Document The system preferably uses a national electronic identification card (elD) equipped with a secure element chip or biometric subcutaneous chip. This chip and the ID card stores at least one of the listed elements: • A unique identifier • Biometric data (e.g., fingerprint template) • Cryptographic keys Identification Reader The reader is a multimodal device that allows you to use one of the following options: • Near Field Communication (NFC) for contactless reading of the elD • Fingerprint scanning for biometric verification • Optical scanning for reading visible elements of the ID Authentication, Authorisation and Tokenization Server This server performs the following functions: 1. Receives data from the reader 2. Verifies the authenticity of the identification 3. Matches the received identification data with the stored identification data 4. Automated compliance checks (e.g., anti-money laundering rules) 5. Generates a one-time use token for the transaction Distributed Ledger integration The system utilises a distributed network with the following characteristics: • Consensus mechanism such as Practical Byzantine Fault Tolerance (PBFT) • Smart contract platform such as Hyperledger Fabric User Wallet Each user has a distributed ledger wallet associated with their ID. This wallet: • Can supports multi-signature functionality for added security • Can generates new addresses for each transaction for enhanced privacy Smart Contract implementation The smart contract governing the payment process includes: 1. Dynamic allowance settings o Maximum transaction amount (adjustable by user) o Daily / weekly / monthly spending limits o Merchant or product category restrictions 2. Multi-factor authentication requirements based on transaction amount, products or merchant category Payment Process Flow 1. User presents government-issued ID, elD or Biometric ID Chip to the reader at a point of sale 2. Reader scans the ID 3. Encrypted data is sent to the Authentication and Authorisation Server 4. Server verifies the ID data 5. Server validates the allowance settings and limits 6. Upon successful verification, a one-time token is generated 7. Token is used to initiate a smart contract transfer function on the blockchain 8. Smart contract checks allowance settings and authentication requirements 9. If additional authentication is needed (e.g., for high-value transactions), a push notification is sent to the user's registered mobile device 10. Upon meeting all requirements, the smart contract executes the payment 11. Transaction is recorded on the blockchain 12. Confirmation is sent to both merchant and user 1. End-to-end encryption using AES-256 for data transmissions 2. Elliptic Curve Cryptography (ECC) for digital signatures 3. Zero-knowledge proofs for privacy-preserving verification 4. Hardware Security Modules (HSMs) for key management 5. Al-powered fraud detection system monitoring transaction patterns in real-time 6. Quantum-resistant lattice-based cryptography for long-term security assurance User Interface The system provides an application for users to: • View transaction history • Adjust allowance settings • Authorise high-value transactions • Receive real-time notifications This preferred embodiment represents the optimal implementation of the invention, combining high security, user convenience, and advanced technological features to create a robust and efficient blockchain-based payment system utilising government-issued identification.

Claims

1. A system for secure electronic payments using government-issued identification, comprising:a. a multi-modal (e.g. RFID, NFC, visual scanning) identification reader;b. an authentication and tokenization server;c. a distributed ledger account matching server;d. a smart contract execution module;e. a cross-chain compatibility module;f. wherein the system is configured to:i. receive and verify government-issued identification data;ii. generate a cryptographically secure one-time-use token;iii. match verified identification data to a distributed ledger account;iv. execute payments via smart contracts;v. facilitate cross-chain transactions;vi. thereby providing secure, efficient, and interoperable electronic payments.

2. A method for processing payments using a government-issued identification document, card, chip or biometric identifier, comprising:a. Optical, RFID or NFC sensors for scanning an identification document, card, chip or biometric data to extract unique identifying elements;b. Generating a cryptographically secure one-time-use token from the extracted data combined with the registered merchant digital identity and transaction data such as amount and timestamp, where the token is cryptographically secure by Edwards-curve Digital Signature Algorithm (EdDSA) with curve Ed25519 generated with a private key from a merchant device for low-latency environments, reducing transaction time and enhancing system efficiency;c. Authenticating the token and the signature via a secure server employing signature verification based on registered merchant’s device public key;d. Matching the authenticated data to a distributed ledger account, ensuring that data integrity, security, privacy and user allowance preferences are maintained, utilising digital signature (EdDSA) as a proof of ownership or Zero-Knowledge Succinct Non-Interactive Arguments of Knowledge (zk-SNARKs) to verify account ownership without revealing sensitive information;e. Initiating a smart contract for payment processing that match user settings and allowance preferences from a registered user’s distributed ledger wallet to a registered merchant wallet;f. Executing the payment via a distributed ledger transaction, enhancing the transaction’s transparency and security.

3. The method of claim 2, wherein the identification document is a national identification card containing a unique element such as national ID number or a secure element, which includes an embedded chip with encryption capabilities to provide a unique identification correlated with the card or chip, resulting in a cost reduction by leveraging existing government infrastructure instead of requiring additional third-party identity verification services, and wherein the system interfaces with government databases through secure APIs to validate the identification document in real-time.

4. The method of claim 2, wherein the biometric identifier is a sub-dermal implant or wearable device containing unique encrypted biometric data or unique ID.

5. The method of claim 2, further comprising:a. Verifying user authorization for the payment based on dynamic allowance settings such asi. maximum transaction amount, ii. daily / weekly / monthly spending limitsiii. merchant or product category restrictionsiv. and machine learning-based risk assessment utilising a neural network model trained on historical transaction data to evaluate the transaction's potential risk in real time, where the model considers factors including transaction amount, merchant reputation, user transaction history, and geolocation data.

6. A system for identification-based distributed ledger payments, comprising:a. A multi-modal identification reader capable of extracting and tokenizing unique identifying data through technologies including NFC, RFID, visual scanning;b. An authentication and tokenization server for verifying identification data against centralised or decentralised storage, ledger or database;c. A server for matching identification data to distributed ledger accounts, using Zero-Knowledge Succinct Non-Interactive Arguments of Knowledge (zk-SNARKs) or asymmetric cryptography such as Edwards-curve DigitalSignature Algorithm (EdDSA) with curve Ed25519 to ensure user privacy while verifying ownership, allowances and customised by user limits;d. A smart contract for executing payments based on customised by user conditions;e. A user wallet on a distributed ledger network with cross-chain compatibility to facilitate transactions across various blockchain systems and communication protocols, such as Hash Time Locked Contracts (HTLCs) or escrow accounts conditions for atomic swaps and the Interledger Protocol (ILP), allowing seamless and secure transactions across different blockchain networks, thereby reducing transaction costs and latency associated with multi-chain interactions, and utilising a bridge chain mechanism to ensure consistency of transaction states across different networks.

7. The system of claim 6, further comprising a machine learning-powered fraud detection system that employs a combination of unsupervised anomaly detection algorithms (such as Isolation Forest) and supervised learning models (such as Gradient Boosting Machines) for real-time transaction monitoring and risk assessment, enabling proactive fraud prevention measures, where the system is regularly updated with new transaction data and retrained to adapt to evolving fraud patterns.

8. The system of claim 6, further comprising: means for detecting fraudulent transactions; means for adapting to new fraud patterns; means for real-time risk assessment; wherein said means utilise machine learning algorithms to continuously improve fraud detection accuracy and system security.

9. The system of claim 6, wherein the multi-modal identification reader includes Near Field Communication (NFC), Radio Frequency Identification (RFID),scanning capabilities for government-issued documents such as passports, driver licences, and national ID cards or biometric chips, and includes a secure element for encryption and temporary storage of scanned data to prevent unauthorised access.

10. A method for registering an identification document or biometric identifier for use in distributed ledger-based payments, comprising:a. Receiving user registration information based on government-issued documents through a secure portal which employs end-to-end encryption and secure access;b. Verifying user identity through multi-factor authentication, including document verification with use document’s holograms validation, liveness detection, faceand biometric verification and matching, database and watchlist checks to ensure its authenticity, or government-approved digital signature, wherein the verification process includes real-time API calls to government databases for cross-validation of document information;c. Linking a user's distributed ledger wallet address to their verified identification using asymmetric signing in a process that uses a public and private key pair to create and verify a signature. Public key represents a decentralised and distributed wallet and a signature verify an ownership of the wallet;d. Setting up dynamic payment allowances and limitations including contextual factors, such as transaction history and merchant reputation in a smart contract and authentication and authorisation server with machine learning-assisted risk profiling of user behaviour, utilising a combination of rule-based systems and predictive models to establish personalised risk thresholds.

11. The method of claim 10, wherein the allowances include context-aware maximum transaction amounts and frequency limitations based on user behaviour, merchant categories and historical transactions patterns, and are automatically adjusted over time using a reinforcement learning algorithm that optimises for user convenience and security.

12. A method for secure electronic payments, comprising:a. Receiving a payment initiation request accompanied by government-issued identification data;b. Verifying the authenticity of the government-issued identification data through a secure verification server which implements Edwards-curve Digital Signature Algorithm (EdDSA) using curve Ed25519, and Zero-Knowledge Succinct Non-Interactive Arguments of Knowledge (zk-SNARKs) and connection to centralised database with registered by user or government identification data;c. Upon successful verification, generating a unique transaction token identifier that cryptographically combines elements of the government-issued identification, transaction data as amount, merchant and user IDs, transaction category defined by user conditions, and distributed ledger wallet address resulting in improved security against unauthorised access, where the token is generated using a secure hash function (e.g., BLAKE2b) and includes a timestamp to prevent replay attacks;d. Creating a secure state channel for the transaction, anchored by the unique transaction identifier according to defined by users rules that incorporate dynamic, machine learning-driven risk assessment;e. Executing the payment within the state channel according to smart contract rules, conditions and allowances;f. Closing the state channel and recording the final state on the distributed ledger, thereby completing the transaction with improved efficiency and security compared to conventional distributed ledger transactions, and updating the user's risk profile based on the transaction outcome.

13. The method of claim 2, the system of claim 6, or the method of claim 12, further comprising: Implementing a fallback mechanism for transaction processing in case of primary system failure; Providing an option for manual review of high-risk transactions; Offering user-configurable privacy settings for transaction data; Wherein these additional features enhance system reliability, security, and user control.

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