What is Decentralized Identity in Blockchain?

Decentralized Identity in Blockchain

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 increasingly more online platforms, businesses and individuals demand secure, reliable, and user-controlled identity systems.

Many have considered decentralized identity (DID) platforms. A decentralized identity tool leverages blockchain, providing users complete control over their data. This technology would eliminate the need for a third party and provide verification control to the individual.

Blockchain DIDs show promise, and here’s how we know it offers better privacy and security measures.

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, allowing you to verify your identity on multiple sites. Your data, therefore, is managed on a centralized platform.

With decentralized IDs, your data is stored in a decentralized database built on blockchain. This database records and verifies transactions without needing 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 users store data 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, the user fully owns and controls data, not organizations or services.

Therefore, you could create a digital identity that includes your:

  • College diploma
  • Credit card and banking information
  • SSN (Social Security Number)
  • Driver’s license
  • Passport
  • Biometric identity data like fingerprints and voice recognition

How Does Decentralized Identity Work?

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 is presented, a verifier (e.g., an employer or law enforcement) can verify the authenticity by finding the document on the blockchain.

Centralized vs. Decentralized Identity Systems

When talking about how centralized identity systems are different from decentralized ID systems, here’s the best way to portray them:

Parameter Centralized Identity Systems Decentralized Identity Systems
Control Single authority control. Control is distributed among entities.
Data Storage Stored in centralized databases. Decentralized, often using blockchain and SSI.
Access Control All control is with the central authority. Users have more control.
Privacy Lower security and privacy, given exposure to identity fraud. Higher security and privacy due to user-centric control.
Resilience Vulnerable to a single point of failure. More resilient, less dependent on a single point.
Efficiency Efficient for standardized processes. More adaptable but may require more effort for coordination.

Blockchain Technology and Decentralized Identity

A secure and reliable identity system is required, now more than ever! With more and more businesses working online, security has never been more crucial. Traditional identity management systems faced challenges and couldn’t match current security, privacy, and user control matters.

Hence, blockchain technology came in at a very crucial time. It offered decentralized identity systems, thus managing control over several entities and digital identities.

How Can Blockchain Technology Help Decentralized Identity Enhance Security?

Here are some key factors that make blockchain technology ideal for enhancing security:

1. User Ownership, Control, and Consent

Blockchain functions on a decentralized network of nodes. This ensures that no single entity has complete control. Thus, decentralized identity works seamlessly as individuals can fully control their information and gain data ownership.

With a decentralized identity, no data can be shared without the user’s consent. This enhances security and reduces the chances of identity theft and unauthorized access.

2. Data Security and Permanence

Blockchain offers high security, i.e., data, once recorded, is nearly impossible to alter or tamper. This is an essential feature as it ensures the security and accuracy of identity records and promotes trust in the process.

3. Seamless Data Sharing Across Platforms

Blockchain’s data-sharing acts as a data log that allows seamless sharing, verification, and transactional proceedings across platforms. Blockchain’s decentralized identity solutions provide a more integrated and user-friendly experience.

4. Prevention of Identity Theft

The decentralized identity market is well-known for offering data security and protection against identity theft. Its cryptographic features protect and store the data to create a more secure identity ecosystem. It offers end-to-end encryption that allows the safekeeping of passwords and minimizes the risk of identity theft.

Quick Fact:

What is Cryptography?

As Wikipedia says, “It is the practice and study of techniques for secure communication.” Its most common applications are:

5. Elimination of Single Points of Failure

Traditional centralized identity systems were vulnerable, but blockchain eliminates the risk of a single point of failure. This is because no single user can make changes and tamper with the central repository or records.

6. Decentralized Identifiers (DIDs)

Decentralized identifiers (DIDs) are unique, verifiable, controlled, and self-owned identifiers. When each DID is associated with a document, it offers trust, security, and interactional and transactional privacy.

7. Privacy-Preserving Authentication

Blockchain’s decentralized identity and cryptographic methods ensure privacy is maintained and only authorized people access the information.

Benefits of Decentralized Identity

Decentralized identity (DID) manages and controls digital identities and personas, offering fraud-proof accessibility. Here are seven key benefits of decentralized identity:

1. Enhanced Privacy and User Control

2. Reduced Risk of Identity Theft

3. Interoperability Across Platforms

4. User-Centric Identity Verification

5. Resilience and Security Through Blockchain

6. Cost-Efficiency and Streamlined Processes

7. Empowering the Unbanked and Underserved

Who Benefits from Decentralized Identity Solutions?

Many end-users benefit from DIDs.

For example, you want to apply for a bank loan. The bank asks for online documents, or your physical presence is required to apply for the loan.

To avoid the lengthy verification process, submit identity proof and verification documents to their decentralized identity back-end form.

Thus, a decentralized identity (DID) means no single group or person has complete authority over the data.

This minimizes data breaches and identity theft.

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

Individuals – This returns 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 of 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.

Why Is Decentralized Identity Important for Business?

Decentralized identity holds significant importance for businesses as they offer a range of benefits and address the challenges associated with traditional identity management. Some of the reasons for DID being essential for business are:

1. Enhanced Security and Data Protection

Decentralized identity offers a more secure and resilient infrastructure. Thus, eliminating the risk of data tampering, unauthorized access, and identity theft. Ultimately, this ensures the integrity and authenticity of the digital identity data.

2. Minimizes Identity-Related Fraud

Businesses face significant challenges in verifying the identities of users in online transactions. Decentralized identity (DID) solutions and cryptographic techniques develop robust and fraud-resistant authentication methods. This helps businesses offer better user experience and reliability and reduces identity fraud by restricting access.

3. Focuses on User Experience

When customers feel they have more control over their digital identities, they feel more secure. This develops trust in the brand and, ultimately, enhances user experience. Decentralized identities reduce the repetition of identity verification, streamline processes, and allow only required information to pass through.

4. Develops Lasting Consent-Driven Relationships

A user-centric approach allows users to select the platforms where they want to disclose their information. Moreover, it helps them decide how much information they wish to disclose. DIDs provide users with transactional transparency and complete control over the process. Thus, it enhances the customer relationship and builds trust.

5. Follows Government Compliance and Data Protection Regulations

Decentralized identity aligns with data protection regulations such as CCPA (California Consumer Privacy Act). Such acts allow customers to share and trust their digital data with businesses. Also, government compliances enable businesses to create a customer-centric user experience.

6. Reduced Dependency on Centralized Authorities

Traditional identity verification depended on central authorities, thus making them vulnerable to breaches and malware attacks. Meanwhile, decentralized identity works by not relying on a single authority. This allows users to have more control over their digital identities.

7. Provides Transactional Privacy

Businesses can always promote their ‘transactional privacy; policy as decentralized identifiers ensure privacy and data security during any transaction.

8. Maintains Brand Reputation and Builds Trust

A decentralized identity in blockchain technology ensures a company follows privacy policies, government regulations, and practices ethically. This builds trust, brand reputation, and an edge over the competitors.

Is Decentralized Identity in 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, 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. For example, biometric authentication and facial recognition 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


The decentralized identity market is an ecosystem of various solutions and technologies. These solutions enable a better user experience by offering individuals more control over their digital identities and accounts. Once these solutions are developed and deployed, these identity platforms follow protocols to enhance user privacy and security.

A decentralized identifier (DID) is a unique identifier created using a set of numbers and letters. These combinations can be known as a digital address on the blockchain created, owned, and controlled by an individual.

DIDs are a fundamental component as they offer secure interactions, and individuals can manage and share their identity information whenever they want and on their own terms.

Self-sovereign identity (SSI) is where individuals have full ownership and control over their digital identities. For example, if you want to buy air tickets online, you must submit proof of identity. You have complete authority over whom you want to share your personal information with. This gives individuals complete ownership over their data and control over whom they interact with.

Yes, decentralized identity systems can be revoked as their fighting mechanisms can address key compromises.

Yes, decentralized identity systems can be used for voting systems as they offer a secure and transparent voting platform.