President Barack Obama unveiled an ambitious proposal Friday urging the private sector to create a trusted-identity system to boost consumer security in cyberspace.

Digital rights groups cautiously welcomed the first-of-its-kind government proposal, calling it a blueprint for increased internet security and privacy, as the nation drifts to the virtual world to take care of basic needs from grocery shopping to paying taxes and dating.

“The internet has transformed how we communicate and do business, opening up markets, and connecting our society as never before. But it has also led to new challenges, like online fraud and identity theft, that harm consumers and cost billions of dollars each year,” President Obama said in announcing the so-called “National Strategy for Trusted Identities in Cyberspace” (.pdf).

The announcement came days after Sens. John Kerry (D-Massachusetts) and John McCain (R-Arizona) proposed online-privacy legislation that for the first time would give web users the right to demand they not be tracked online.

The latest plan, which distances itself from a national ID approach, calls on the private sector to develop methods by which consumers can create a secure, online identification to enable web transactions. The plan envisions replacing today’s reality of generally having to remember passwords for dozens of sites where consumers have already lodged their sensitive data, such as credit card numbers.

The government estimated that 11.7 million Americans were victims of some form of identity theft in the past two years, and it suggests Friday’s proposal could reduce those numbers.

“We must do more to help consumers protect themselves, and we must make it more convenient than remembering dozens of passwords,” Commerce Secretary Gary Locke told the U.S. Chamber of Commerce on Friday.

The Center for Democracy and Technology lauded the idea, at least in theory.

“It’s not a national ID card at all. This is a proposal to figure out ways for more reliably saying who we are on the internet,” Aaron Brauer-Rieke, a CDT fellow, said in a telephone interview. “This is the beginning of the story, not the end. There’s potential gains for privacy and empowerment. But if it goes wrong, it could have the opposite effect.”

Marc Rotenberg, executive director of the Electronic Privacy Information Center, agreed.

He applauded the proposal for it not being a government-run “Big Brother,” national-identification plan. The administration, he said, was “genuinely trying to solve a hard problem.”

But he cautioned that there’s a risk in consolidating online credentials.

“If that gets compromised, that’s like losing your whole wallet, instead of just losing your driver’s license or credit card,” Rotenberg said.

The government is allotting up to five years for the “standardization of policy and technology” to come together. Implementation of the plan, the government said, “will not occur overnight.”

Photo: Mikey G. Ottawa/Flickr

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