Imagine having all your identifying information, licenses, certifications, bank account information, medical documentation, etc., securely held in one place. Decentralized identity technology does just that! Furthermore, it’s a blockchain technology that keeps all your identifying documents in just one place and does so privately and securely.

In this article, we travel to the outer rim of Web3 and explore the topic many are unfamiliar with, namely, decentralized identity! We look at Web3, blockchain’s future, if decentralized identity actually provides more security and privacy, how it helps developers, and its challenges. So, without further ado, let’s begin and have decentralized identity explained!

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Decentralized Identity Explained

When you create an account with most businesses or organizations today, you will likely have an ID number of some kind. Furthermore, each unique ID number will contain all necessary information, such as name, address, and whatever information the organization requires. This creates multiple identity documents for each organization you register with, which can be an overwhelming number of records to keep track of.

Banks, libraries, gym memberships, hospitals, and professional licenses each require a unique sign-in or access procedure. Also, for each visit, each organization will want documentation of your personal information. However, with decentralized identity technology, participants can instantly use a designated wallet to verify identifying information and credentials. Institutions issue the information and can change, add to, or revoke it later. For example, the government may issue your personal information such as name, address, phone number, and social security number. Then, when you want to prove your identity to a third party, the authentication protocol of the decentralized identity blockchain technology will verify it instantly without disclosing other sensitive information. Imagine not having to change all your personal information on every single account in your name every time you move. What a dream!

Blockchain & digital identity.
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Web3 and Identity

To better understand decentralized identification, let’s talk about other kinds of identifications available. You may already be familiar with centralized identity and federated identity. A centralized identity is when you register your information with one entity and is used only by that entity. So, examples of centralized identity may be a gym membership, email account, and login credentials for a website. On the other hand, federated identity is when registering information with one entity trusted by other entities. An example of this would be bank transactions. When you need to prove your income, investments, and financial data, your bank information can provide that. Conversely, a decentralized identity contains all your personal data and can be verified globally without disclosing your most sensitive data. An example would be verifying that you meet a minimum income threshold without revealing your actual income.

Blockchain technology and Web3 are evolving every single day. While technology advances, it is also creating solutions to everyday problems. Our identity plays a huge role in our day-to-day life, such as when you sign in to your email or bank account or apply for a mortgage and have to prove your income. Storing this personal information multiple times online can increase the risk of stolen identity and data. However, decentralized identity and Web3 technology help to alleviate that risk.

While Web2 lacks privacy, Web3 aims to give control back to participants utilizing blockchain. With the power of blockchain technology, Web3 is completely decentralized, leaving control of information in the power of its user instead of a third party.

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Creating a Web3 Identity

As we explore Web3 and decentralized identities, a common question one might ask is, “how do I create a decentralized identity?”. Answering that question goes beyond the scope of this article. However, in short, a start is to create a Web3 wallet. Although, creating such a wallet will only enable you to access various chains and interact with dapps built on blockchain networks. Moreover, MetaMask is one of the most popular Web3 wallets and verification methods used. If that sounds interesting, make sure to check out our article on how to set up a MetaMask wallet

If you want to build a Web3 website, you must understand decentralized identity.
For developers, check out our “How to Make a Web3 Website” article!

Is Blockchain the Future?

Decentralized identity provides enhanced privacy for participants in the blockchain. To say that it is the future is not a stretch. Blockchain and decentralized identity are likely to be the future. Development is still in its early stages and will take time to adopt. Moreover, social media services such as Meta (formerly Facebook) and TikTok may not want to participate in decentralized identity as it limits their target ad capabilities. But other tech companies such as Microsoft and IBM may adopt the protocol sooner than later.

Imagine proving your identity almost instantly along with other required information without digging through old files and paperwork. Decentralized identity solves this ancient process of multiple documentation pages and keeps information private and secure in one spot. Furthermore, being the core of Web3 technology, decentralized identity will quickly become a solution to everyday identification problems. Moreover, this new way of identity authentication will put the power of personal data back into the hands of the people. It will change how people interact with services and the management of their data.

The possibilities of Web3 are endless. While blockchain technology is taking strides in the future of identity verification, it’s important to note that significant improvements still need to occur. Developers must meet with legislators and lobbyists to ensure proper regulation of Web3 and the metaverse. If built correctly, the decentralized identities could make both our physical and digital worlds much safer and more convenient. 

Does Decentralized Identity Mean More Privacy and Security?

In most cases, we use passwords for identity verification. Emails, bank logins, membership accounts, etc., usually operate on a username and password system. When we log in using passwords, there is a common problem that occurs. Sometimes, we reuse the same password for multiple accounts. Passwords are relatively easy to decode. Hackers can get a hold of confidential information once they can access your login credentials.

In 2017, hackers gained access to millions of Instagram accounts, mostly celebrities. They took personal information from the accounts and allegedly sold them for $10 each. The information they made available to buyers were personal emails, addresses, and even phone numbers. With this information available, thieves could take it up a step and potentially gain access to other personal accounts of their victims.

Decentralized identity brings a level of security through blockchain technology that is virtually impossible to hack. Unless a hacker can get a hold of your private key, passwords, and biometrics, they won’t be able to access your data on the blockchain. 

In today’s world, most people have nearly a hundred different accounts online which could mean that one hundred different places have your email address, phone number, credit card information, and much more. Having personal data scattered all over the internet could potentially cause security issues that could be a hassle to clean up. Blockchain technology simplifies access to this information for the owner while simultaneously complicating it for potential thieves. 

Who Can Access My Information with Decentralized Identity?

The decentralized identity system has a few main components. First, it’s blockchain-built, which makes it quite difficult for hackers to access or manipulate the data. The second element it contains is a wallet. A decentralized identity wallet allows users to create and manage their decentralized identifiers (DID) and verifiable credentials (VC). Furthermore, a DID is a string of numbers and letters containing the public key and verification information. The VC is a digital version of both the paper and digital credentials. Moreover, these credentials can be presented to a third party for verification.

Let’s talk a little more about verifiable credentials. VC involves three parties: the holder, the issuer, and the verifier. The issuer signs a VC with a private key and issues it to the holder. Then, the holder of the wallet receives the VC from the issuer. The verifier (a.k.a. the third party) can check to see that the issuer indeed signed the DID. That’s all! It’s straightforward, right?

One of the benefits of decentralized identity being on the blockchain is that blockchain technology makes it immutable. Blockchain technology makes it nearly impossible for an ill-willed individual to access your data. Hackers are less likely to attempt to steal your information, hindering identity fraud and theft. Essentially, the only parties that will have access to your data will be the parties you allow. Furthermore, the only information third parties will have access to is the information you provide and nothing more. For example, if a verifier wants to see that you meet a minimum salary requirement for a loan, your wallet can verify that you meet the minimum threshold without revealing your actual income. 

How does decentralized identity work?

How Does Decentralized Identity Help Developers?

Decentralized identity solutions will allow developers to build applications that enhance the user experience, and this technology will eliminate the need for individual usernames and passwords. Also, developers can securely request data directly from users, not servers, without revealing their other private data, such as phone numbers, residential addresses, and email addresses.

Developers will be able to build applications that won’t store all of your credit card details. Instead, the application will be able to verify your information securely through a decentralized identity. This way, the chances of data leaks are virtually eliminated. 

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Will Centralized Data Disappear with the Emergence of Decentralized Identity?

Nobody can say for sure what will happen in the future. With blockchain technology and Web3 making life so much easier in many ways, centralized identity systems will likely become less popular.

Decentralized identity technology provides benefits for both users and service providers. It brings a new layer of security and privacy that could eliminate data breaches and save both individuals and organizations millions of dollars in potential damages. So, with technology like that at our fingertips, who wouldn’t want to make the switch?

The appealing side of centralized identity is the ease with which information can be regained if the holder were to lose or forget login credentials. Having some sort of paper trail or backup datasheet will always be beneficial. 

What are the Challenges of Decentralized Identity?

Nowadays, when you lose your login information or even a driver’s license, there are multiple other ways to verify your identity. Social security numbers, passport information, and tax documents are some alternative ways in which you can prove your identity. When all this private information is logged into just one place, it can create a challenge for most people.

One issue for decentralized identity is that most of its users will have to be tech-savvy, to a degree. While most grandparents today may struggle with blockchain technology, that may not be the case for future generations to come. It still poses an issue for people who may have accessibility issues, whether it’s vision impairment or an inability to use the technology. Another big challenge to be tackled in decentralized identity is one of its benefits: the ability to store all personal information in one place. Getting your information back could be a big headache if you lose your private keys and credentials.

Another important factor to consider is what happens when the owner of a decentralized wallet dies. Issues arise regarding privacy and security when a third party needs documents and the owner is no longer around to provide them. What happens with the information of the deceased and their assets? Will access be granted to those left behind? If so, how?

While there are challenges to decentralized identity, the technology evolves daily. Blockchain developers are building the future of decentralized identity with these and other important questions in mind. While the fine details are still being tuned, the transition to decentralized identity will likely be slow, incorporating a combination of all the different kinds of identity authentication.

How Web3 Identity Gives Consumers Control – Summary

Blockchain and Web3 bring a layer of security and privacy to data that will revolutionize the future of identity management. Multiple usernames and passwords will likely become a thing of the past. Whether or not decentralized identity technology will take over the future of identity authentication is uncertain. Web3 and blockchain technology are undoubtedly innovative technologies that will solve many issues in today’s world. This technology could basically eradicate identity theft and data security issues. As such, businesses and individuals alike will benefit from the technology.

A decentralized identity system allows developers to build dapps that request data directly from users. Confidential data such as credit card details, home addresses, and phone numbers will no longer need to be stored in an online environment where information is prone to hackers. Furthermore, being immutable and nearly impenetrable to hackers creates a safe and convenient environment. So, with this level of security and privacy, a decentralized identity system will allow its users to access goods and services at the click of a button instead of going through piles of paperwork and documentation.