Decentralized Identity on Blockchain Technology: Is It Worth It?

decentralized identity technology

With the rise in deepfakes and spoofing, identity management is more important than ever. We increasingly rely on digital platforms. We use them to connect with friends, make purchases, and even store our personal data.

As we rely on more and more online platforms, businesses and individuals are demanding secure, reliable and user-controlled identity systems.

Many have considered decentralized identity (DID) platforms. A decentralized identity tool leverages blockchain, and it provides users complete control over your data. This type of technology would eliminate the need for third-party, and instead, provide control of verification to the individual.

Although blockchain DIDs show promise, there are privacy and security concerns that many

What Is Decentralized Identity?

Decentralized identity is an evolving digital identity management solution. The basic idea is that it shifts data control from centralized authorities to the individual.

For example, in a centralized identity environment, you would create an account on a single platform, which would allow you to verify your identity on multiple sites. Your personal data, therefore, is managed on a centralized platform.

With decentralized IDs, your data is stored in decentralized database built on blockchain. This database records and verifies transactions, without the need for a central ID verification authority. Some of the key advantages of this type of system are:

  • Security: Decentralized systems reduce the risk of large-scale data breaches as data is stored by users in their wallets, not in a centralized system.
  • Control: In decentralized systems, data is only shared when the user authorizes it, unlike centralized systems where data may be collected and shared without user knowledge.
  • Ownership: In decentralized systems, data is fully owned and controlled by the user, not by organizations or services.

Therefore, you could create a digital identity that includes your college diploma, credit card and banking information, your SSN, your driver’s license, passport, and even biometric identity data like fingerprints and voice recognition.

How Decentralized Identity Works

Self-sovereign identity (SSI) describes how DID works. Essentially, the idea is that SSI users’ data isn’t stored in a central location or that they need accounts on multiple platforms. Instead, SSI users have “digital document vaults” that are stored and can be accessed by various apps.

There are two key technologies and ideas behind SSIs: Blockchain, verifiable credentials, and decentralized identifiers.

  • Blockchain provides a secure, transparent, and immutable record of transactions.
  • Verifiable Credentials (VCs) are digital equivalents of physical credentials. They are cryptographically secure and can be presented for verification.
  • Decentralized Identifiers (DIDs) are unique identifiers that users create and control. They contain no personally identifiable information, enhancing privacy.

Therefore, with digital identity, an issuer (like a university or state licensing organization) would issue a VC to the holder. This credential would be signed with the issuer’s private key and recorded on the blockchain. Whenever the VC was presented, a verifier (e.g. an employer or law enforcement) can verify the authenticity by finding the document on the blockchain.

Who Benefits from Decentralized Identity Solutions?

benefits of decentralized identity on blockchain

Many end-users benefit from DIDs. For example, a wide-spread use of DIDs would mean that data breaches could no longer steal huge volumes of data, as that data would be stored in various locations on the blockchain.

Some of the stakeholders that would benefit from decentralized IDs include:

  • Individuals – This returns the control of ID documents to the individual. Individuals would have full ownership and control over their digital identities, and would no longer have to rely on third parties for verification. This would help to increase privacy and data security.
  • Businesses – Businesses would no longer need to store user data. This would reduce their risk to cyber-attacks and data breaches. They could also verify credentials instantly, which may help to fight digital fraud.
  • Tech Companies – Developers could build user-centric apps with reliable and faster user authentication. This would improve user experience and security.

5 Drawbacks to Decentralized Identity Platforms

Decentralized ID platforms benefit various stakeholders and they show promise. However, these tools haven’t been widely adopted, and they place more demands on users, which may stifle their growth in technology.

Some of the key reasons decentralized identity verification isn’t widely used include:

  1. Limited use – These platforms would need to be used by issuing agencies (like governments, universities, and businesses). To reach this level of ubiquity, there would need to be standards in place for interoperability. This is something the Decentralized Identity Foundation is working toward.
  2. User experience – Controlling data on the blockchain requires technical expertise, and that’s why user experiences have to be simple for mass adoption.
  3. Regulations – These systems currently operate in a grey legal area. Resolutions are needed on issues like security, liability, and KYC compliance and privacy laws.
  4. Data recovery – In blockchain controlled systems, data recovery can be a challenge. If users lose the private key to their “digital wallet”, they could lose access to documents and data. This is similar to people losing access to cryptocurrency wallets.
  5. Security risks – Blockchain is secure, but there are security risks. This includes private keys being stolen or 51% attacks, where an entity gains control of the network’s mining hash rate and can disrupt transactions.

Is Decentralized Identity on the Blockchain the Future?

Decentralized ID has the potential to be a significant part of future identity verification platforms, especially considering the push for data privacy and security.

However, at the moment, these platforms aren’t widespread. And moving forward, they’re much more likely to coexist with existing centralized platforms before the takeover.

One potential solution: Using advanced digital ID verification tools. Using biometric authentication and facial recognition for example is one solution that will make your processes more secure. Read our White Paper: An Introduction to Digital Identity Verification to learn more tips and ideas for using next-generation verification tools.

  • Biometric identity verification
  • Blockchain Technology
  • identity verification processes