In today’s digital age, our identities are constantly at risk. But what if you could control your own personal information with unbreakable security? That’s where blockchain in digital identity comes in, revolutionizing how we prove who we are online.

How does blockchain in digital identity work today?

For companies, collecting and storing sensitive user information alongside routine business data creates new risks, especially with the rise of privacy regulations like GDPR. Balancing data security with the need for business insights becomes a costly and challenging endeavor.

For IoT devices, the lack of standardized identity and access management capabilities raises security concerns, particularly as the number of interconnected devices continues to grow exponentially. Mismatched standards and the prioritization of basic management over security contribute to the increasing risk of large-scale IoT hacks.

For individuals, the issue of identity is fundamental. A lack of proper identification can exclude individuals from essential services and opportunities, leaving them vulnerable. Even with official identification, individuals often lack control over their data, facing the constant threat of breaches and identity theft. Centralized systems and fragmented online experiences further exacerbate these challenges.

The current state of identity management presents various hurdles, highlighting the need for a more secure, decentralized, and user-centric approach to identity verification and data ownership.

Why do we need blockchain in digital identity?

Current identity management systems face numerous challenges, making blockchain-based solutions increasingly necessary.

The issue of inaccessibility leaves approximately 1.1 billion people worldwide without any form of identification, denying them access to education, employment, and financial services. This disproportionately affects the poorest populations, highlighting the need for innovative solutions. Blockchain-based mobile identity systems could offer a viable alternative, as many unbanked individuals already possess mobile phones.

Data insecurity is another major concern, with centralized government databases being prime targets for hackers. Personally identifiable information (PII) is highly sought after by cybercriminals, leading to breaches and significant financial losses. Despite efforts to bolster cybersecurity, the centralized nature of existing systems makes them inherently vulnerable.

Additionally, the fragmented nature of digital identities and the weak link between online and offline identities facilitate the creation of fraudulent accounts, contributing to fake interactions, fraud, and misinformation. This undermines trust in online platforms and can have detrimental effects on society.

Blockchain technology, with its decentralized and secure nature, presents a viable solution to these challenges. It offers a way to create immutable, transparent, and tamper-proof identity systems based on decentralized identifiers (DIDs), potentially including self-sovereign identity (SSI) solutions. This shift towards decentralized identity management could empower individuals, enhance security, and reduce fraud, ultimately fostering a more inclusive and trustworthy digital landscape.

How do Decentralized Digital Identities Work on Ethereum?

What is Digital Identity?

A digital identity is formed naturally through the use of personal information online and the “shadow data” created by an individual’s online activities. It can range from a pseudonymous profile linked to a device’s IP address to a randomly generated ID. This identity is shaped by various data points, including usernames, passwords, identification numbers, purchase history, birthdate, online searches, and even medical records. Biometrics, behavior, and biographic information are all contributing factors that collectively define a person’s digital identity.

How is Digital Identity Created?

In one scenario, users create and register a Decentralized Identifier (DID) on a self-sovereign identity and data platform. This process involves generating a pair of private and public keys. For security and recovery purposes, the public keys linked to the DID are stored on-chain. While additional data associated with the DID, such as attestations, can be anchored on-chain, the complete dataset is not stored on-chain to ensure scalability and compliance with privacy regulations.

What is a Decentralized Identifier?

A decentralized identifier (DID) is a pseudonymous identifier for various entities, including individuals, companies, and objects. Each DID is secured by a private key, granting exclusive ownership and control to the key holder. This allows individuals to maintain multiple DIDs, limiting the extent to which they can be tracked across different activities.

DIDs are often associated with verifiable credentials (attestations) issued by other DIDs, affirming specific traits like location, age, or qualifications. These credentials, cryptographically signed by issuers, enable DID owners to store them independently, reducing reliance on centralized profile providers. Additionally, non-attested data, such as browsing history or social media posts, can be linked to DIDs by owners or controllers depending on context and intended use.

How are decentralized identities secured?

Cryptography plays a central role in securing decentralized identities. This method employs a pair of keys: a private key, exclusively held by the owner, and a public key, shared widely. This pairing achieves two crucial purposes. The first is authentication, where the public key confirms that a message was indeed sent by the owner of the corresponding private key. The second is encryption, where only the possessor of the matching private key can decipher messages encrypted with the public key.

How are decentralized identities used?

When equipped with a decentralized identity, users can present a verified identifier, such as a QR code, to access specific services. This identifier acts as a proof of their identity. The service provider then validates this proof by confirming the user’s control or ownership of the associated attestation. This attestation is linked to the user’s Decentralized Identifier (DID), and the user signs the presentation with the corresponding private key. If the signature matches the DID, access is granted, ensuring a secure and reliable authentication process.

What are the use cases of Blockchain in digital Identity Management?

What is Self Sovereign identity?

Self-sovereign identity (SSI) is the concept that individuals and businesses can store their own identity data on their personal devices. They have the autonomy to choose which information to share with validators, eliminating the need for a central repository of identity data. These identities are independent of any nation-state, corporation, or global organization, giving individuals more control over their personal information.

What is Data Monetization?

With growing global discussions on data ownership and its potential profits, blockchain-based self-sovereign identities and decentralized models are empowering users with control and opening avenues for data monetization.

Data monetization involves utilizing personal data for measurable financial gain. While raw data holds inherent value, the insights gleaned from personally identifiable data significantly amplify its worth. The immense volume of data generated daily by billions of internet users, coupled with the ongoing digitization of the global economy, further emphasizes the escalating value of personal data.

In the current landscape, our online data is often intangible, obscured, and intricate. Attribution plays a pivotal role in establishing ownership, and SSI facilitates the direct association of online data with an individual’s DID. This empowers individuals to monetize their data by leasing it for AI training or selling it to advertisers, while also offering the choice to shield it from corporate or governmental access.

What is Data Portability?

Article 20 of the EU GDPR grants users the right to data portability, enabling the direct transfer of personal data between controllers when technically feasible. This can significantly improve user experience by eliminating the need for repeated identity verification across platforms.

Leveraging DIDs and verifiable credentials, identities can be seamlessly migrated from one system to another, reducing friction and simplifying sign-up processes, thereby enhancing user adoption. The reusability of credentials through DID data portability enables swift re-verification while adhering to KYC regulations. This is particularly beneficial in the financial sector, where it reduces customer onboarding time, minimizes drop-out rates, and cuts costs associated with traditional identity verification processes that involve extensive document submission and review.

How does blockchain enable increased economic contribution?

Digital ID is projected to significantly boost economic growth globally over the next decade. Its inclusive nature benefits individuals while stimulating economic activity for the global market. Notably, a study by McKinsey suggests that reaching the unbanked population in ASEAN could increase the region’s economic contribution from $17 billion to $52 billion by 2030.

Furthermore, the value attributed to digital identities is expected to grow exponentially, with estimated economic benefits reaching hundreds of billions of euros for European businesses and governments, and even greater value for consumers. Decentralized identity models empower users to unlock this value, thereby contributing to the growth of the global economy.

What are the benefits of decentralized identity?

Decentralized Public Key Infrastructure (DPKI)

Decentralized Public Key Infrastructure (DPKI) is the foundation of Decentralized Identity, utilizing blockchain to create a secure and trustworthy method for distributing cryptographic keys. This allows individuals to create or anchor their keys on the blockchain in a tamper-proof and time-stamped manner, eliminating the need for traditional certificate authorities (CA). These keys enable others to verify digital signatures or encrypt data intended for the specific identity holder. Consequently, DPKI facilitates various use cases, notably verifiable credentials (VCs), which are digital credentials equipped with cryptographic proofs.

Decentralized Storage

Decentralized storage, a core component of secure identity data management, leverages blockchain’s cryptographic security and distributed storage systems like IPFS or OrbitDB to safeguard identities from unauthorized access and exploitation. This approach is inherently safer than storing sensitive information on centralized servers.

In this framework, verifiable credentials are typically stored directly on users’ devices or within secure private identity stores, also known as identity hubs. By placing control in the hands of users, their identities become self-sovereign, granting them full authority over access and usage.

This self-sovereignty enhances data interoperability, enabling users to utilize their information across multiple platforms and for diverse purposes without the fear of being locked into a single provider. Furthermore, it empowers individuals to protect their data from potential breaches or misuse by corporations and governments.

Manageability and Control

In centralized identity systems, the entity issuing the identity typically shoulders the responsibility for safeguarding the associated data. However, in a decentralized identity framework, this burden shifts to the user. They can choose to implement personal security measures or rely on external services like digital bank vaults or password managers.

Moreover, blockchain-powered decentralized identities make it considerably more difficult for hackers to compromise personal data. Instead of targeting a single, central repository, they would need to attack numerous individual data stores, making such breaches less attractive due to increased costs and reduced profitability. This inherently strengthens the security of decentralized identities, providing greater protection for users’ sensitive information.