Decentralized Identity In Blockchain – A Complete Guide 2022

Different experts from around the world have noted that login systems based on passwords have become quite insecure when it comes to different online activities. Experts also think that having different multi-factor strategies produces hurdles that contribute towards the reduction of both user adoption and levels of productivity.

Effective identity verification in conjunction with being in line with the latest data privacy regulations develop a plethora of both security level and customer level problems which are said to be expensive and have no practical use. Different organizations have started to learn that two factor authentication methods are just patching up a serious wound. So, the question arsis that what are other alternatives to two factor authentication methodology.

Several organizations having a presence in the self-sovereign identity (SSI) community have started to work in parallel to develop validation using decentralized identity methods in order to deal with the issues of password systems.

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With that in mind, lets move towards the main concepts behind decentralized identity and how it can be utilized to develop better verification methods.

Main Concept

In basic terms, a decentralized identity can be referred to as an identity that is managed by itself and works independently to confirm trusted data transfer between two entities. Decentralized identity is a concept that is based on the upcoming technological advancement known as Web3, which follows a trust framework to introduce identity verification and management.

The identity management term refers to methods that are used to administer both identity and access, enabling people to develop, manage and have power over their personally identifiable information (PII) without having to deal with third parties like registries, identity providers or certification authorities that work in a centralized manner. With the help of the trust framework, users and companies can connect with each other in a secure and transparent manner.

PII is basically very personal data that highlights information about different individuals, which helps different identity verification systems to accurately identify them. This sort of data usually includes different fields such as name, age, address, biometric information, employment status, credit card history and other types that are very private which individuals do not share very normally.

In conjunction with PII, a decentralized digital identity contains information that is obtained using certain devices that have an active internet connection. This includes, username, password, search records, purchase records etc. Using a decentralized identity, users have complete control over their PII and only need to give out the information that is necessary for verification. This is also where the trust framework comes into play.

Is it worth it?

The good thing about decentralized identity is that it provides individuals with a registered proof od identity and fully control over their personal data through a system that is both secure and easy to operate. Proof of identity that is also verifiable has become staple for individuals who are looking to utilize different services such as healthcare, banking and education.

The very unfortunate thing to note is that, according to the information shared by the World bank, more than a billion individuals worldwide do not possess a verifiable proof of their existence in the world. A significant portion of the population around the globe, without any identity proof are unable to perform certain activities such as voting, access to a bank account, buying a property or even searching for jobs that can help them grow.

In addition to this, traditional identification systems which operate in a centralized manner are not secure, lack functionality and are difficult to work with and since these systems are centralized, they are quite attractive to hackers and exploiters who are looking to steal data and sell it off for profits. With the passage of time, there have been countless reports of these kinds of systems being targeted by hackers that have led to the stealing of data of millions around the world.

Furthermore, individuals using centralized systems are also plagued with an issue regarding ownership and do not have full control over their identity data, while also being blind towards the value that their data is worth. In centralized systems, the PII of individuals are handled by other entities, so it is almost impossible for an individual to have complete control over their personal PII data.

This is where the concept of decentralized digital identity comes into play, which looks to resolve these issues by developing certain ways for individuals to utilize their digital identity on several platforms without having to worry about the security and ownership of their data. To take advantage of a decentralized identity framework, users are only required to have a device with an active internet connection.

Not only that, decentralized identity systems, especially distributed ledger technology and blockchain provide solid validation for real identities. These types of systems are built upon blockchains that have architectures that perform consistently, have excellent compatibility and are almost impossible to mess around with.

This helps to effectively secure sensitive information like PII, while also providing the advantages to not only individuals, but also companies, developers and Internet of Things management protocols.

Working of Decentralized Identity Management

The basic backbone of decentralized identity management is the utilization of decentralized blockchain-powered wallets that are fully encrypted. The framework helps users to take advantage of decentralized identity wallets which are specially designed to develop decentralized identification data, store PII data and manage verifiable credentials, without having to store identity information on several websites that are managed by other entities.

Alongside the distributed structure, these types of identity wallets are fully encrypted, meaning that instead of passwords, there are cryptographic keys that are not representative of any type of weakness if a breach occurs. The wallet developers a public and a private key. The public key basically differentiates the wallets from one another, and the private keys come in handy during the authentication stage.

Additionally, these wallets also act as a shield for user communications and data. Decentralized applications (DApps) take in PII data and require legit information to develop a trust factor, provide proof of eligibility or just process a certain transaction. The wallets also provide users with the ability to have control over their identity information, meaning that the users are responsible for where they send or block their information details.

Information inside of the wallet has signatures of several different trust groups to help establish its accuracy levels. With the utilization of decentralized identity wallets, users can provide their proof of existence to any third-party that requires it, without having the need to give up control over the data.

Self-Sovereign Identity

This is a concept that focuses on the utilization of distributed database systems for the management of PII information. The term self-sovereign identity (SSI) is crucial when it comes to decentralized identities. In conjunction with the previous section, users of SII have digital wallets that contain and provide access their credentials as needed. According to experts, there are three major components that make up SSIs.

  1. Blockchain

A blockchain is basically digital database that is decentralized and holds records of transactions. A blockchain spread across a network of computers that are responsible for recording information in such a unique method, that helps it to become practically impossible to hack or exploit.

  1. Verifiable Credentials (VCs)

VCs are verifiable credentials that are secured using cryptographic methods and utilize the concept of SSI to help protect user data. They highlight certain private information that often contained via the use of paper. Examples of such information include passport information, licenses or even digital credentials such as proof of ownership of a bank account.

  1. Decentralized Identifiers (DIDs)

This is one of the latest types of identifiers that help users to have a digital identity that is verifiable using cryptographic methods. A DID basically represents any type of subject for example, an individual, a company, a model etc.

DID is determined by the one controlling it and is initialized by the owner and does not have any connections to companies. DIDs also provide users with the ability to provide identity verification without having the need to seek permission from any other entity.

Advantages and Disadvantages of Decentralized Identity

Decentralized Identity carries four major advantages that prove its worth.

  1. Control

This helps users gain complete control and ownership over their digital identifiers. Because of this they have the power to decide what kind of information they are willing to provide to prove their existence without having the need to worry about requirements from third parties.

  1. Security

Since the system is powered through a blockchain, the security levels are extremely impressive, as it is almost impossible to breach a blockchain because of its nature. Blockchains are encrypted, are solidly developed and have a ton of other advantages boasting their potentials across different systems.

Additionally, decentralized identity also helps companies in minimizing security related risks. Companies have certain rules and regulations they need to follow in terms of data collection and are punished for even the slightest of violations. Using decentralized identity management, the companies are only required to collect the information needed for verification, meaning that their regulations are simple, and the number of attacks are also significantly reduced.

  1. Privacy

This factor involves entities to utilize the principle of least privilege (PoLP) in order to assign the least or selective level of access to identity information. The principle of least privilege (PoLP) highlights that any individual, device or process should only provide the information that is only necessary for the completion of a certain task.

  1. User-Friendly Platforms and Applications

Decentralized identity also provides users the power of initializing and managing their own identification information by using different decentralized identify applications and platforms that are not only user friendly but are also reliable.

As for the disadvantages, there are a few that need to be kept in mind.

Different governments and major companies around the world are still in the learning phase for how to utilize decentralized identification technology to accommodate large-scale levels of population. Some of them are not even aware that this technology exists, so there is a huge lack of awareness as well. Replacing traditional systems and regulations is also a major issue, as proper standards and regulations need to be followed, while shifting towards new technologies.

Additionally, there is also the issue of identify data fragility, which includes issues like duplication, confusion and data inaccuracy in identity management systems.

Protocols related to Decentralized Identity

Different identity protocols ranging from small crypto-based companies to large scale organizations must work with decentralized identification with each of them having their own set of unique features. Although this technology might seem to be new, but different entities in the decentralized identity space have been quite supportive of it.

There are some popular decentralized identity stores such as uPort and 3Box, which are also referred as identity hubs. Very recently, uPort, which is powered by Ethereum, distributed into two separate projects named Veramo that is focused on providing an open-source framework for identifies and Serto, which also has a similar motive, with both working towards making the internet decentralized.

3Box Labs have been working on the development of Ceramic network, which is a decentralized network which enables top level data compatibility for Web3 applications and Identity Index (IDX), having no limits, brining more compatibility towards data.

ION is a DID platform, which is a decentralized identity network, powered by the Bitcoin blockchain and is based on the SideTree protocol. The Dock protocol on the Polkadot system helps users to develop identities and credentials that are trivially verifiable.

Boosting Adoption Levels of Decentralized Identity

Despite many SSI and CV communities focusing on the promotion of decentralized identity and blockchains to power the true goal of SSI, there a few aspects like business validation tales that are absent, which can provide more insight towards the innovation side of things. There is still a lot of work to be done to gain media attention in order to provide more insight in terms of business applications.

According to information from IBM, currently there are projects like Job-Creds and many others that are looking into the horizons of business applications though SSIs using domains such as Employee Credential Lifecycle Management. The Sovrin Network is another example, as its current executive direct Heather Dahl stated that the network is designed in such a way that it helps to provide power to identity management solutions that are not only secure, but also boast impressive compatibility.

Future Expectations of Decentralized Identity

While still in its early stages of development, the concept of decentralized identity has a ton of untapped hidden potential for creating solutions that can provide more power to the people when it comes to storing and handling their private information. As the world progress towards Web3, decentralization and blockchain technology will have major control and will lead to the increment in the number of people able to have full control over their precious data.

Although the decentralized identity space is still in its early stages, judging by the content mentioned in the above sections, the concept of decentralized identity powered by blockchain technology has an untapped potential towards making identity management follow decentralization, become simple and seamless and fully changing the space around it.

The main goal is to provide more power to users who are online and are looking to develop a reputation that is impressive and verifiable and proves that they have a presence. According to different analysis, it is said that the trending Metaverse from parent company Meta might become the starting point towards the utilization of decentralized identity solutions, enabling people to prove their existence on online platforms without any problems.

Many different crypto startups and DID projects are working hard to develop solutions that can justify the concept of decentralized identify all sectors such as finance, health and many others. The development of non-fungible tokens (NFTs), blockchains, and other related technologies will help the concept of decentralized identity to truly shine and reach more individuals in the Web3 system, expected to have a massive rise in popularity in the upcoming years.

Final Thoughts

Having control over your personal information is not only important for security reasons but is also necessary to provide your existence when dealing with different platforms around the world. As centralized systems continue to wear out, decentralized systems have started to grow on global scale, meaning that people will gain more power over their data, without having the need to worry about third parties who can often imply regulations that are tough to handle.

With the development of decentralized identity systems and the fulfillment of the goals of SSI/VC communities, there is not telling what kind of potential is awaiting that can revolutionize all fields that require a new level of innovative solutions to keep their presence intact and help individuals to continue taking advantage of the services. With the coming time, there is a lot to be expected of this idea, so buckle up for a new ride.

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