What Is Decentralized Identity?

In today’s digital landscape, safeguarding personally identifiable information (PII) is of utmost importance, given its vulnerability to theft and misuse. Furthermore, with numerous entities collecting and storing personal data for various purposes, the need for a secure solution is evident. Enter decentralized identity – a revolutionary approach that promises enhanced security, user control, and a transformative way of managing digital identities.

Understanding Digital Identity

Traditionally, we often establish our identity through physical documents like passports, licenses, and birth certificates.These documents validate our identity, granting us access to various services. However, when we transition to the online world, the concept of identity becomes a bit more complex.

Digital identity plays a crucial role in our increasingly interconnected world. It acts as a verification tool, enabling access to a range of online services, from shopping and banking to education and work.

Digital identity refers to the online representation of a person’s identity, which includes personal information, such as name, age, and address, as well as online activities like browsing history and social media posts. Various digital platforms, such as social media, email, online banking, and government databases, create and manage digital identities.

The advantages of having a digital identity are clear: broader access to online services, tailored user experiences, and a layer of protection against potential identity theft. However, personal data associated with a digital identity can be vulnerable to cyber threats, identity thefts, and data breaches, exposing users to significant consequences. According to Fortunly, it is estimated that around 15 million Americans have their identity stolen every year.

Centralized systems, especially the current methods of managing digital identities, cause many of these challenges. This has led to a growing demand for more secure and dependable identity management solutions. Decentralized identity provides the answer to this need.

What Is Decentralized Identity?

Decentralized identity is an approach for managing digital identities that uses blockchain and cryptography to provide a secure and user-controlled solution. With decentralized identity, individuals and organizations can take control of their identities and protect themselves from potential misuse.

Through this approach, individuals can exercise control over their personal data and determine who has access to it and for what reasons. Unlike traditional identity systems, a decentralized identity management system operates without a central authority like governments, banks, or corporations controlling identities.

Centralized vs. Decentralized Identity Systems

In a centralized identity system, a central authority controls all of the user’s identity information. This information is stored in a single database, which is vulnerable to cyberattacks. Additionally, the central authority has complete control over the user’s identity, which can be a privacy concern.

For instance, consider a government-issued identity card or passport. It holds details like names, addresses, photos, and other vital information. The government logs every identity card they issue into their database. People with these ID cards then use them to prove and confirm their identity when they need to access important services. Social security numbers, Facebook logins, company-given usernames and passwords, and Google accounts are other examples of this. This can be a privacy concern, as the government may not always use the information for legitimate purposes.

However, in a decentralized identity system, the user’s identity information is stored on a distributed network. This makes it more difficult for cyberattacks to succeed, as the attacker would need to compromise multiple nodes in the network. Additionally, the user has more control over their identity information, as they can choose who has access to it.

Challenges of Centralized Identity Systems

To participate in a centralized identity system, individuals provide their personal information to the central authority, which verifies it and issues an identity credential. This credential, such as a username and password or an ID card, is used to access services.

When attempting to access a service, individuals provide their identity credentials to the service provider, who then verifies them with the central authority. If valid, the central authority confirms the identity to the service provider, allowing access.

However, centralized identity systems come with several challenges, including:

• Because everything is stored in one place, it’s a big target for hackers and other threats. If someone breaks into the main database or server, they could get the personal details of millions of people.
• People don’t have much say over their own details in these systems. In fact, many big companies control and use these details in ways that the actual owners might not even know about.
• These companies can cut off access to these identity systems whenever they want.
• Centralized systems can be slow and costly. They can cause delays when checking identities and sharing details between different groups.

Decentralized Identity: A Web3 Solution

Decentralized Identity, on the other hand, is a web3 solution to the challenges posed by centralized systems. At its core, decentralized identity leverages distributed ledger technology (DLT), such as blockchain, to create a network of trust where identity-related information can be securely stored, shared, and verified. Individuals can create self-sovereign identities, meaning they have complete control over their digital identities and can decide which information to share with whom.

By not depending on central authorities, decentralized identity systems let people prove who they are, build trust, and use online services without middlemen. This new approach lets people handle their identities on many platforms, making things more private, secure, and user-friendly.

How Does Decentralized Identity Work?

Decentralized identity operates in a series of steps:

1. Creating a Decentralized Identity

Platforms such as self-sovereign identity wallets, decentralized identity platforms, and blockchain-based identity systems provide a means for individuals to create and manage their own decentralized identity. Some popular platforms are include Metamask, sovrin, uPort, Microsoft’s ION, and using ERC-725 and ERC-735 standards.

On these platforms, each person gets a decentralized identifier (DID), which acts like a unique digital ID. Essentially, a DID is a long string of characters that points to your digital identity. No two DIDs are the same, ensuring individuality and distinctness.

Along with the DID, two cryptographic keys are made: a public and a private key. The public key functions as a unique ID number that can be shared with the public, while the private key remains confidential and serves as a password. These keys connect to the DID, ensuring only the user can access their identity. Safeguarding the private key is crucial to maintain the security of the decentralized identity.

2. Receiving Verified Credentials

A reputable organization, like a government, school, or workplace, checks your identity details and gives you a unique digital certificate. This certificate has info like your name, age, or qualifications. The organization signs these digitally, making them secure and verifiable with the organization’s public key.

In addition to the information they represent, these credentials often include metadata. This metadata provides supplementary information about the issuer, the date of issuance, and any expiration or revocation details. It serves to establish the credibility and validity of the credential. Notably, these verified credentials are associated with your public key and serve as proof of your identity.

3. Storing Your Decentralized Identity Details

Individuals can securely store their information in digital wallets. A digital wallet is a secure application that serves as a personal vault for storing and easily accessing digital credentials.

Additionally, developers often build these wallets on distributed ledger technologies like blockchain, which ensures immutability and resistance to tampering. Encryption techniques are utilized to provide an additional layer of protection for the contents stored in digital wallets. With digital wallets, individuals can effectively organize and manage their credentials.

4. Checking Your Identity 

When individuals need to prove their identity or share specific information, they have the ability to selectively disclose only the necessary information for a particular transaction or interaction. With decentralized identity, they decide which certificates to show, what details to give out, and how long the info is valid for. This control helps keep personal details private and reduces the risks that come with traditional identity systems.

Benefits of Decentralized Identity

Decentralized identity offers a number of benefits over traditional methods of managing digital identities, including:

• Privacy: Decentralized identity gives individuals more control over their personal information. They can decide who has access to their data, and they can revoke access at any time.
• Security: Decentralized identity is more secure than traditional methods of managing digital identities. This is because the data is not stored in a central location, making it less vulnerable to cyberattacks.
• Interoperability: Decentralized identity is interoperable, meaning that it can be used across different systems and applications. This makes it easier for individuals to use their digital identities to access services from different providers.
• Cost-effectiveness: Decentralized identity can be more cost-effective than traditional methods of managing digital identities. This is because there is no need for a central authority to manage the data.

How Does Decentralized Identity Benefit Individuals?

1. Ownership and Control: Individuals have full control and ownership of their identity data, boosting privacy and data management.
2. Safety From Identity Theft: With traceable and verifiable systems, it’s tough for scammers to fake or misuse identity details, lowering identity theft chances.
3. Better Privacy: Individuals can choose what information to share, reducing the risk of data leaks and ensuring more privacy.
4. Smooth User Experience: Users can have one identity across different platforms, making things simpler and removing the need for multiple accounts.
5. Inclusion and Accessibility: Everyone can set up their identity and get important services, promoting equal access and inclusion.

How Does Decentralized Identity Benefit Organizations?

1. User-Centric Approach: Decentralized identity systems focus on the user, enhancing digital offerings and user satisfaction.
2. Lower Fraud Risk: With easy-to-track and verify systems, businesses face less fraud and financial risks.
3. Cost Efficiency: By reducing reliance on third parties and streamlining identity management processes, organizations can save costs.
4. Regulatory Compliance: These systems follow data protection rules, helping businesses stay in line with laws like the General Data Protection Regulation (GDPR) and the California Privacy Right Act (CPRA).
5. Better Reputation: Adopting decentralized identity shows a company’s dedication to privacy, safety, and empowering users.

Core Concepts of Decentralized Identity

1. Decentralization

Decentralization is the backbone of decentralized identity. It means there isn’t just one main authority or group in charge of the identity system. Instead, the system is spread out over many parts or participants. They all work together to keep the identities and credentials safe and accurate. As a result, this decentralization ensures that no single entity has complete control over an individual’s identity, making the system safer and more trustworthy.

2. Self-sovereign Identity (SSI)

Self-sovereign identity is a key concept in decentralized identity systems that give people full control over their digital selves.

With SSI, you can manage your identity details, decide what to share, and pick who to share it with. And you don’t need to depend on big organizations or middlemen. Want to dive deeper into SSI? Here’s a detailed article.

3. Decentralized Identifiers

Decentralized Identifiers, or DIDs, are unique identifiers at the core of decentralized identity systems. DIDs are designed to be globally unique, persistent, and resolvable across different networks and platforms. Check out this article for a more detailed explanation on DIDs.

4. Verifiable Credentials

These are a key part of decentralized identity systems. Verifiable credentials are like digital stamps of approval that have important identity info and come from trusted sources. Specifically, they can show all sorts of details, from personal info to qualifications. Check out this article for a more detailed explanation of verifiable credentials.

5. Interoperability and Standards

Interoperability means that different decentralized identity systems can work together smoothly. It ensures that different decentralized identity systems and platforms can seamlessly interact, exchange information, and verify credentials. This interoperability is achieved through the use of standards and protocols, such as Decentralized Identifiers (DIDs), Verifiable Credentials (VCs), which are developed by organizations such as World Wide Web Consortium (W3C) and Decentralized Identity Foundation (DIF). 

6. Blockchain Technology

Decentralized identity is built on top of blockchain technology, a distributed ledger that records transactions across a network of computers. The blockchain provides a decentralized and immutable platform to securely store and manage decentralized identifiers, verified credentials, and related metadata.

By leveraging cryptographic techniques and consensus algorithms, the blockchain ensures the integrity, transparency, and tamper-proof nature of the identity system. Importantly, blockchain technology enables trust without the need for intermediaries. The consensus mechanisms employed in blockchain networks allow participants to agree on the validity of transactions and identity-related information, eliminating the reliance on central authorities. 

Decentralized Identity Use Cases

Decentralized identity has a lot of practical uses. Here are a few examples:

1. Digital Identity Verification

By leveraging verified credentials, decentralized identity systems offer a secure and efficient way to verify individuals’ identities online. This can be used in areas such as:

• Know your customer (KYC) processes, helping financial institutions and service providers to maintain anti-money laundering (AML) compliance.
• Restricting access to age-restricted products and services
• Facilitating remote identity verification.

2. Voting Systems

Decentralized identity can make voting more secure and open. By using blockchain and decentralized identity, we can check voter IDs safely, making sure only eligible voters participate while keeping their votes private. This reduces the chance of fake votes and can even support voting online.

3. Identity Access Management

Decentralized identity systems can enhance identity access management and authentication processes, providing a secure and user-centric approach. Decentralized identity enables users to authenticate themselves across multiple platforms and services. It acts as a single sign-on (SSO) or combines with other Multi-Factor Authentication (MFA) techniques to add an extra layer of security when accessing sensitive information or performing critical operations.

4. Healthcare and Medical Records

Decentralized identity can enhance the management and sharing of healthcare-related information. Additionally, patients can control their medical records and grant access to healthcare providers when necessary. It ensures privacy, data integrity, and interoperability across different providers.

5. Supply Chain Management

Decentralized identity can change the way we manage supply chains. It allows for safe and clear tracking of items and checks if products are genuine. By giving products special IDs, decentralized identity systems make sure the supply chain is honest, fights fake products, and gives shoppers trustworthy info about where products come from and if they’re real.

By storing product details on a blockchain, decentralized identity gives a clear view of the whole supply chain. This helps spot fake items, ensures products are sourced the right way, and makes tracing products easier.

6. Education and Academic Credentials

Decentralized identity enables issuing and verifying digital certificates, eliminating the need for paper-based credentials. It facilitates the secure sharing and verification of educational achievements, skills, and certifications. Individuals can maintain lifelong learning records on a decentralized identity system, securely storing and sharing their credentials throughout their careers.

The Future of Decentralized Identity Systems

Decentralized identity is still a new idea, and not everyone uses it yet. But the future looks bright. As technology gets better, and as more people in the industry work together, we could see big changes in how we handle and control our online identities. We can expect more people to use self-sovereign identity, which means they’ll have full control over their digital identity. This will make using online services smoother, and different decentralized identity systems will work well together.

When decentralized identity starts working with AI, the Internet of Things (IoT), and blockchain, we’ll see even more ways to safely check identities, make sure devices are genuine, and keep personal data private. We’ll have a wide range of trusted groups that issue, check, and hold digital identities, making online interactions across different sectors safe and easy.

Conclusion

In conclusion, decentralized identity represents a paradigm shift in identity management, giving individuals control over their personal information. In comparison to traditional centralized identity models, decentralized identity systems offer enhanced privacy, security, and user empowerment. Despite its challenges, decentralized identity has several potential benefits, including protecting personal data and enabling new forms of digital interaction. An increasingly user-centric and secure digital future requires individuals to embrace a decentralized identity as they become more aware of their digital footprints.

Identity.com

We firmly believe in blockchain technology and are one of the few blockchain-based identity management companies reshaping how users’ identities can be managed digitally. Identity.com is also a member of the World Wide Web Consortium (W3C), the standards body for the World Wide Web.

Identity.com, as a future-oriented company, is an open-source ecosystem providing access to on-chain and secure identity verification for businesses, giving their customers a hassle-free experience. Our solutions improve the user experience and reduce onboarding friction through reusable and interoperable gateway passes. Please refer to our docs about how we can help you with identity verification and general KYC processes.