Social Security is a critical source of money for tens of millions of retirees. Yet identity theft associated with Social Security numbers has become so rampant that some policymakers now believe the best course of action would be to get rid of those numbers entirely.

In response to last year's breach of credit information at Equifax, the White House started looking at ways to replace Social Security numbers as the primary identifying number for tax and other financial purposes. That proposal has been controversial, with many thinking it's an overreaction to the identity theft threat. However, supporters of getting rid of Social Security numbers believe that there's a new and budding technology that could be a natural replacement: blockchain.

Social Security card with dice on it.

Image source: Getty Images.

Why Social Security number-based identity theft is a huge problem

The Equifax breach showed just how vulnerable Americans are to the loss of their Social Security numbers. More than 145 million people might have had their data exposed to hackers, according to Equifax's revised estimates. Among the information lost were names, birthdates, addresses, and credit card numbers, along with Social Security data.

Yet in some ways, such a massive breach was inevitable, at least in some form. After all, Social Security numbers aren't just used for dealing with the Social Security Administration. They're the primary means of identification for tax returns filed with the IRS. They're required for making any type of investment that would result in a financial institution having a reporting obligation to tell the IRS about any income the investment generates. Medical providers often use it as an identifying number, and it's even become a common identifier in areas unrelated to finance.

In defending his former company after resigning as CEO, Equifax's Richard Smith testified before Congress that the idea of Social Security numbers as a primary identification factor was outdated and that the U.S. should consider more advanced options for identifying people. Trump administration cybersecurity specialist Rob Joyce said late last year that various federal agencies and departments were asked to look at alternatives to Social Security numbers both for purposes of paying retirement benefits to Americans and for other areas unrelated to Social Security.

Is blockchain the answer?

Among the solutions suggested are a number of ideas that other countries have looked at more closely. The combination of a physical card and a personal identification number could make it harder for identity thieves to pick up vital information.

Blockchain could play a role in making such a system less vulnerable. If each person were given an identifying hash, then all future transactions could be protected as long as the hash remained secure.

Some governments have already looked at blockchain technology for similar purposes. In China, the state social security system is looking at the potential for blockchain technology to reduce costs while cementing the government's control over the program.

The challenge with identity theft

The key question for any solution to the Social Security number problem is whether the alternative would truly be any safer than Social Security numbers are. Any replacement that requires you to disseminate vital information, such as a hash or personal identification number, would arguably have the same vulnerabilities as Social Security numbers have now. The significant number of cyberattacks involving theft of bitcoin and other cryptocurrencies show that there are weak links even within blockchain technology.

For now, blockchain won't be an immediate solution to the problem of protecting Social Security numbers from identity thieves. Once policymakers look more closely at the possibilities that blockchain opens up, then it could become a more viable answer to the challenges that identity theft poses to society as a whole and to the Social Security program in particular.