What is a decentralized identity?

Introduction to Decentralized Identity

Decentralized identity is a relatively new concept in the world of digital identity management that aims to give individuals more control over their personal identity information through the use of an identity wallet.

Decentralized Identities use blockchain technology, a distributed ledger, to create a decentralized system for managing and storing identity information. This means that instead of relying on a central authority, identity providers or organizations to manage and store identity information, decentralized identities allow individuals to store their own identity information in a secure, decentralized way.

A blockchain is a type of distributed ledger technology that consists of growing lists of records, called blocks, that are securely linked together using cryptography. Blockchain facilitates the process of recording transactions and tracking assets in a network. An asset can be tangible (a house, car, cash, land) or intangible. Virtually anything of value can be tracked and traded on a blockchain network. In the case of a digital identity, rather than a central authority managing the user's identity, a blockchain-based distributed ledger acts as the source of truth. Let's explore how decentralized identity works.

Benefits of Decentralized Identity

One of the key benefits of decentralized identity systems is the concept of self-sovereign identity (SSI), which is gaining ground as an alternative to today's centralized and federated infrastructures. SSI allows individuals to be in control of their own identity information and how it is used, rather than relying on a centralized organization or government to manage and control their identity. With SSI, individuals can choose which pieces of their identity information to share and with whom, and can even create multiple digital identities for different purposes.

One way that decentralized identity systems achieve this level of control is through the use of decentralized identifiers (DIDs). DIDs are unique, cryptographic identifiers that are stored on a blockchain and can be used to represent a person, organization, or other entity. DIDs are often paired with verifiable credentials, which are digital documents that contain identity information and are signed by a trusted issuer. Verifiable credentials can be used to prove things like a person's age, employment status, or educational qualifications.

The use of DIDs and verifiable credentials allows individuals to prove their identity in a secure, decentralized identity framework. Instead of relying on a central authority or organization to verify their identity, individuals can use their DID and verifiable credentials to authenticate themselves directly with service providers. This can be especially useful in cases where an individual may not have traditional forms of identification, such as a driver's license or passport.

Decentralized Identity Use Cases

One potential use case for decentralized identity systems is in the healthcare industry. Healthcare providers often need to verify a patient's identity in order to access their medical records or provide treatment. With decentralized identity, patients could use their DID and verifiable credentials to prove their identity to healthcare providers, rather than relying on a central authority to verify their identity. This could help to improve the overall patient experience and reduce the risk of identity fraud or errors.

Decentralized identity systems can also be used to improve interoperability between different identity management systems. Currently, many organizations and government agencies use different identity management systems, which can make it difficult for individuals to share their identity information across different platforms. By using a decentralized identity system, individuals could create a single digital identity that could be used across multiple platforms, improving the overall user experience and reducing paperwork.

Another potential benefit of decentralized digital identity is increased security. Centralized identity systems can be vulnerable to personal data breaches and other security threats, as all of the identity information is stored in a single location. With decentralized identity, the information is stored in a distributed ledger and can only be accessed using cryptographic keys, making it much more difficult for unauthorized parties to access or tamper with user data.

The future of the digital identity ecosystem

There are several companies and organizations working on implementing decentralized identity solutions, including Microsoft and the Decentralized Identity Foundation (DIF). The DIF is an open-source, non-profit organization that is working to create an ecosystem of identity solutions that are based on blockchain technology and focused on improving user experience and security.

One potential use case for decentralized identity is in the financial sector, where individuals could use their DID and verifiable credentials to authenticate themselves and prove their identity when accessing financial services such as online banking or applying for a credit card. This could help to reduce the risk of identity fraud and improve the overall user experience. Dynamic NFTs could also be used as digital credentials, as they have the power to evolve while preserving a unique identifier and being kept in a digital wallet secured by a public key-private key pair, necessary for the authentication process. Governments could issue passports in the form of dNFTs that would update as a person travels, removing the need for stamps and additional paperwork, as well as reducing the possibility of fraud thanks to blockchain technology.

Decentralized identity systems could also be used to improve the security and privacy of social media platforms. Currently, many social media platforms collect and store vast amounts of personally identifiable information (PII) about their users. With decentralized identity, individuals could use their DID and verifiable credentials to authenticate themselves on social media platforms, rather than sharing their PII directly with the platform. This could help to reduce the risk of data breaches and improve the overall privacy of social media users.

Overall, decentralized identity has the potential to revolutionize the way that we manage and use our personal identity information. By giving individuals more control over their identity information and providing a secure, decentralized way to store and share it, decentralized identity systems could help to improve security, interoperability, and the overall user experience. As more organizations and individuals begin to adopt decentralized identity solutions, we may see a shift towards a more decentralized and self-sovereign identity model.

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