The Ultimate Guide to Decentralized Identity

Decentralized identity is basically a way to prove who you are online without relying on big companies, giving you control over your personal data.

A growing number of industry leaders across the blockchain ecosystem are redoubling their efforts to distribute user credentials (like IDs or logins). While this is encouraging, users may feel overwhelmed by the various decentralized identity solutions.

Throughout the following primer, we will dive into decentralized identity (DID), the top projects in the space, and a methodology for determining which option is best.

What is Decentralized Identity?

When managing one’s digital identity, a decentralized identity is the way to go because it gives users complete autonomy over their information and eliminates the need to rely on any company.

A person’s, company’s, or gadget’s digital identity is its collection of online identifiers and associated metadata. The following items of information contribute to a person’s digital identity:

• Logins and security questions
• Past Searches
• Identifier for Social Security
• Purchase record

The Advantages of Decentralised Identity for Businesses

Enables instant legitimacy checks for IDs, certificates, and documents without contacting issuing parties. Manual verification is time-consuming and costly. Envision verifies credentials efficiently with QR codes or a user-friendly tool.

Allows issuing entities to efficiently and cheaply issue Verifiable Credentials to individuals while protecting themselves from fraud.

• Since the user is the sole caretaker of all information about their identity and credentials, they can independently establish the veracity of their assertions.
• Individuals can choose which details they share with third parties like the government or their employer.
• Once an individual’s ID is saved in their mobile digital identity wallet, any third party cannot take it away.
• Platforms like Dock make it simple for users to establish and control their own distributed identities.
• We often need to provide documentation attesting to our existence to exercise our constitutional right to access necessities such as medical care, banking services, and higher education. One billion people worldwide do not have any form of government-issued ID. Decentralized identity systems require only internet access and a smart device, which are becoming more commonplace in developing countries.

The Advantages of Decentralized Identity for Individuals

Decentralized identity is not only good for businesses obviously. There are some benefits individuals can use for themselves as well. Here are some:

• Grants individuals complete control over their personal information, eliminating reliance on centralized authorities for identity verification. Users manage their credentials independently, ensuring privacy and security.
• Enables seamless and instant verification of identity documents, educational certificates, and professional qualifications without requiring third-party intervention. Solutions like digital wallets allow users to present proof of identity with a simple QR code scan.
• Empowers individuals to decide which details they share with institutions, reducing unnecessary data exposure. Selective disclosure ensures that only essential information is provided for transactions, preserving user privacy.
• Eliminates the risk of identity loss due to institutional failures, such as data breaches or account suspensions. Once stored in a decentralized identity wallet, credentials remain secure and accessible at all times.
• Provides access to essential services like healthcare, banking, and education for individuals without traditional government-issued IDs. With just an internet connection and a smartphone, decentralized identity enables global inclusion and financial empowerment.

The Advantages of Decentralized Identity for Developers

What about developers? Let’s see:

• Offers a streamlined and secure authentication system, reducing reliance on centralized databases prone to breaches. Developers can integrate decentralized identity verification to enhance security and eliminate password dependency.
• Enables seamless user onboarding without requiring complex KYC (Know Your Customer) processes. Verifiable Credentials allow instant user authentication while maintaining compliance with regulatory standards.
• Reduces infrastructure costs by eliminating the need to store and manage vast amounts of user identity data. Developers can focus on building applications without the overhead of maintaining centralized identity repositories.
• Facilitates interoperability between platforms by adhering to decentralized identity standards such as W3C’s DID (Decentralized Identifiers) and Verifiable Credentials. Applications can verify identities without being locked into proprietary ecosystems.
• Enhances user trust by ensuring that personal data remains under the user’s control. Developers can build applications that prioritize privacy and security, fostering a more transparent and user-centric digital experience.

What are Decentralised Identity Solutions?

DID solutions disperse the issuing and storing of identity information across multiple entities instead of relying on a single issuer and repository?

Details collected could include height, weight, eye color, favorite Spotify playlists, and even Social Security numbers. Comprehensive in nature, decentralized identity solutions may consist of bonuses for user signup, much like some credit card companies offer frequent flyer miles.

The security of centralized solutions is compromised for the sake of convenience. You can learn about all the different data breaches that have happened worldwide with just a quick Google search. Even the smallest security flaws can completely compromise a website’s front end, leaving users with no control over their protection against such attacks.

Once hackers have your private information, they can use it to their advantage. In today’s increasingly digital world, identity theft and other forms of financial misappropriation can occur with the loss of only a few pieces of information. It is often safer to use decentralized versions of these services.

How Decentralized Identity Work?

These are the main components of a decentralized identity system:

• Blockchain is a distributed ledger that records transactions across a network of computers to prevent tampering, hacking, or other forms of fraud.
• A decentralized identity wallet is a mobile app that helps its users generate and store their unique digital credentials.

A DID is a blockchain-based identifier with a unique string of alphanumeric characters, including public key and verification data. “Verifiable Credential” (VC) is a secure, digital alternative to traditional credentials, presented to institutions as proof of evidence.

The major players in the VC system are as follows:

The issuer issues the Verifiable Credential to the Holder, who generates their unique identifier using a digital wallet app. The issuer signs the Verifiable Credential with its private key and provides it to the recipient. To verify the Credential, the holder presents it to a Verifier who checks the issuer’s public DID on the blockchain.

Decentralized Identity and Self-Sovereign Identity: What’s the Difference?

While decentralized identity and self-sovereign identity (SSI) are often used interchangeably, they have distinct meanings. Both concepts emphasize user control over personal data, but they differ in their approach to identity verification and governance.

Decentralized Identity refers to a system where identity credentials are issued and verified using distributed ledger technology (DLT) or other decentralized frameworks. Users control their credentials, but trusted entities (such as governments or organizations) still play a role in issuing verifiable credentials.

Self-Sovereign Identity (SSI) takes decentralization a step further by ensuring that individuals have complete autonomy over their identity without relying on any central authority. SSI enables users to manage their identity independently, selectively disclose information, and authenticate without requiring approval from third parties.

In short, all self-sovereign identities are decentralized, but not all decentralized identities are fully self-sovereign. SSI places ultimate control in the hands of the individual, while decentralized identity can still involve trusted issuers and verifiers.

Decentralized Identity Management vs. Centralized Identity Management

The way identities are managed significantly impacts security, privacy, and user control. Traditional identity systems rely on centralized management, whereas decentralized identity offers a more user-centric approach.

Centralized Identity Management

• Relies on a single authority (e.g., a government agency, social media platform, or corporate IT system) to issue, verify, and store user identities.
• Users must trust the central authority to keep their data secure, making them vulnerable to breaches, identity theft, and data misuse.
• Identity verification often requires repeated submissions of personal information across different services, leading to inefficiencies and privacy risks.

Decentralized Identity Management

• Empowers individuals to own and control their identity data without depending on a single organization.
• Uses blockchain, cryptographic signatures, and verifiable credentials to provide secure and tamper-proof identity verification.
• Eliminates unnecessary data exposure by allowing users to share only the specific details required for authentication.

By shifting from centralized to decentralized identity management, individuals and organizations can benefit from greater security, privacy, and efficiency while reducing reliance on intermediaries.

Decentralized Identity on Blockchain

Nodes, or computers in the blockchain network, share a distributed ledger called a blockchain that is cryptographically secure and nearly impossible to alter, hack, or cheat. By its very nature, blockchain technology ensures that all participants in the network can trust the data it stores. All the information in the chain can be found in the individual blocks. Nodes perform operations, such as exchanging data. Blockchain is short for “distributed ledger technology,” which is another name for the same thing (DLT).

Important Blockchain Properties

Public permissionless blockchains achieve decentralization by functioning as open peer-to-peer networks accessible to anyone. The blockchain’s predetermined behavior remains unmodifiable in any manner.
Blockchain is a decentralized ledger: a digital database hosted by computers worldwide, making data alteration difficult. In contrast, centralized storage allows easy manipulation without suspicion.

However, blockchain technology ensures that every node in the network can access the entire blockchain and use it to confirm that no one has altered the data. Once a node receives the verified data, it updates its copy of the blockchain. All network nodes work together to agree on which blocks are legitimate and which are not. The network will reject a compromised block.

Each block on a chain securely stores data from the previous block, and altering or backdating the blocks is impossible. Each block includes a unique digital fingerprint called a hash. The network can detect tampering if the hash value changes.

Digital signatures and cryptographic hash functions demonstrate how the blockchain can safeguard user’s personal information from prying eyes.
The public permissionless blockchains are open to anyone who wants to join. Some use cases require only specific people to access the network, so permissioned blockchains don’t allow anyone to join without authorization. Accessing, reading, and/or writing information on a permissioned blockchain requires the user to gain permission from the network owner first.

This is how the various participants in a blockchain-based, distributed-identity system put it to use:

A person whose name appears on a verifiable credential (like a driver’s license) will have their public DID record in the blockchain.

The distributed ledger stores the public DID and associated public key of the issuer. An issuer, such as a licensing agency, signs a credential, such as a driver’s license, with their private key before issuing it to a holder.

A verifier, like an on-demand driving service, can utilize the blockchain to confirm the licensing department that issued the license and the recipient of the license, ensuring trust in the process.

The Best Decentralized Identity Projects

Identity management and verification systems utilize decentralized identity management. Companies use decentralized identity projects to simplify their identity management processes. Decentralized identity reduces security risks, mitigates identity fraud, speeds up user onboarding, lowers certificate costs, and provides privacy protection for PII.

Companies use decentralized identity software to verify or manage the identities of their personnel, customers, and other end users, as well as devices like those found in the Internet of Things (IoT). Customers and other end users can save time and feel more secure with decentralized identity solutions. Decentralized identity management offers user control over PII, enabling easy access and updates for validating companies. Self-sovereign identity (SSI) empowers individuals to manage their digital identity, free from third-party involvement independently.

One example of a distributed ledger technology (DLT) system used to create decentralized identity solutions is blockchain software. Users keep their digital identity and credentials in a trustworthy credential wallet service.

For a product to be considered for the Decentralized Identity section, it must:

• Facilitate the generation, storage, and retrieval of digital identities and other credentials that can be verified.
• Help verify identities by checking documents and assessing danger
• Constructed with industry-accepted tools, such as decentralized identifiers and credentials that adhere to W3C standards

Conclusion

Decentralized identity holds immense promise for reshaping digital identity management. This guide explored its fundamentals, advantages for businesses, various solutions, and integration with blockchain. Decentralized identity projects offer innovative solutions by leveraging blockchain’s transparency, immutability, and security. Embracing these cutting-edge solutions enables individuals and businesses to regain control over their identities, protect privacy, and unlock new opportunities. Decentralized identity is not just theoretical; it has real-world applications. Staying informed about the best projects and developments in this space is crucial.