It’s no news that the problems plaguing traditional identity systems, such as privacy breaches, identity theft, etc., are growing daily. As a result, there is a greater need for decentralized identity solutions that are secure, user-focused, and protective of personal data.
Over 71.1 million people lose an average of $4,476 annually due to cybercrime. This demonstrates a failure in identity management and centralization. However, all hope is not lost, as people are now adopting decentralized technology.
In this article, we will be taking a deep dive into decentralized identity solutions. But first, let’s look at what decentralized identity is.
What is Decentralized Identity?
In the traditional online world, websites typically own and maintain your usernames and passwords for accessing their sites and services. Decentralized identification gives you control over your digital identity, making it permanent and transferable.
DID, or decentralized identification, is a form of identity in which users are the sole custodians of their personal data and digital identities rather than relying on a third party (such as a government or a tech corporation). Decentralized identities give people an easier way to access and control their personal information.
Decentralized identity systems require only an internet connection and a smart device, which are becoming more widely available in developing countries. Furthermore, personally identifiable information (PII) is the data that defines each user’s identity. When this data set is decentralized, it eliminates the time-consuming authentication procedure across different entities.
Some common decentralized identity solutions include Microsoft Entra Verified ID, IBM Verify Credentials, Credify, and more.
How Do Decentralized Identity Solutions Work
Knowing the context of decentralized identities and how they function is essential. We have outlined how decentralized identity solutions work below:
- Blockchain Technology
- Decentralized Identifiers (DIDs)
- Decentralized Identity Wallets
- Verifiable Credentials
- User Consent
Blockchain Technology
Due to blockchain technology’s security and immutability, many decentralized identification solutions now use it. You can easily store DIDs and other verifiable credentials safely in a blockchain database because of the immutable nature of its transaction records.
Security and scalability are fundamental to decentralization, and the blockchain is where it all starts. However, all participants must agree upon the data before it can be written to the blocks.
Decentralized Identifiers (DIDs)
DIDs are the backbone of distributed authentication systems. They are numbers that people use to identify a specific person or organization online, and that can be resolved anywhere in the world.
Furthermore, users are given pseudonyms when they employ decentralized identities. A typical user’s identity is represented by a string of alphanumeric characters or a list of decentralized domain names, and they can only access their account.
Decentralized Identity Wallets
When it comes to identity management, decentralized identity wallets are a must-have. They serve as trustworthy and user-controlled libraries for managing digital identification information, such as Decentralized Identifiers (DIDs).
These wallets are safe digital repositories that allow individuals to manage their identifying information. For security purposes, wallets use cryptographic keys only owners can use.
Verifiable Credentials
Verifiable credentials are bits of information or statements regarding the identity of an individual or entity. When required, people can use verifiable credentials to prove identity because they are cryptographically signed.
There are three main players in the context of digital identity use:
- Holders
- Issuers
- Verifiers
Holders
They have authentic credentials. By storing their credentials in a distributed ledger, users gain the status of “holders.”
Issuers
Individuals or groups that confer legitimacy on a credential holder are called issuers.
Verifiers
The term “verifier” refers to any organization or individual whose goal is to confirm the accuracy of the identity details provided by another party.
User Consent
Decentralized identification systems rely heavily on user consent and control. It is ultimately up to the individual to determine if and with whom they will disclose their credentials. This provides users with more freedom and security over their data.
Benefits of Decentralized Identity Solutions
Decentralized identity solutions benefit individuals, companies, and the digital ecosystem. Some significant benefits of distributed identity management systems include the following:
- Reduced Identity Fraud
- Privacy Control
- Enhanced Security
- Trust and Transparency
- Saves Time And Money
Reduced Identity Fraud
Decentralized identification systems are more difficult to compromise than centralized ones because of their security and immutability. Verifiers can now be confident about the accuracy of the credentials provided.
Privacy Control
One of decentralization’s many benefits is the removal of middlemen. The data remains under the sole custody and control of the user. Every aspect of a user’s identification can be shared if and when the user chooses. This decreases the risk of exposing confidential information.
Enhanced Security
Users can be assured that their data is safe using a decentralized system. It uses cryptographic procedures to ensure the safety of user information and digital identities.
The use of private keys and distributed ledgers makes it very challenging for malicious individuals to forge or assume the identities of others.
Trust and Transparency
Privacy, ownership, and validation can now coexist without fear of harm or exposure, thanks to decentralized identity systems. Organizations can verify the legitimacy of a PII on-chain instead of going through the complicated traditional approach.
The fast process is because the information stored in the blockchain can be accessed publicly through explorers and scanners once allowed by the users. Users, verifiers, and issuers can now trust one another thanks to the immutability and clarity of these records.
Saves Time and Money
Using decentralized identity solutions can make organizational identity verification procedures more efficient. There will be less need for paperwork to individuals’ identities, which will cut down on administrative costs.
Concerns About Using Decentralized Identity Solutions
Although there are many advantages, there are also some drawbacks to decentralized identification systems. Some of the main issues and problems with decentralized identity are as follows:
- Scalability Issues
- User Adoption and Usability
- Interoperability Challenges
Scalability Issues
The adoption of decentralized identity systems raises the issue of scalability. A system that can efficiently process many identification transactions and verifications is required to facilitate wider adoption.
User Adoption
It can be difficult to persuade end users to adopt decentralized identification solutions. Many people who utilize the internet still haven’t grasped what web3 is all about. Users are often comfortable with their current identity systems and may hesitate to switch to something new.
Interoperability Challenges
Ensuring that decentralized identification systems can easily integrate with various applications and platforms can be difficult. Fragmentation and interoperability problems might arise when there aren’t any universal standards.
Conclusion
Identity theft is one of the most common forms of online fraud nowadays. It’s more than a trap for unsuspecting customers.
With the advent of decentralized identity solutions, we may see a dramatic shift toward a more secure, privacy-focused, and user-centric approach to digital identification.
The influence of this technology on the future of digital identification is encouraging, and it is an exciting field to monitor as it develops.
