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Decentralized Identity in Blockchain – What Is It And Why Does It Matter?

Blockchain technology has created a new set of innovations in the crypto ecosystem. It has developed a transaction process for the customers that ensures easy access and registration for them. It has also eliminated the requirements like complicated passwords or identity verifications yet providing a secured system to its users. 

However, the decentralization of the blockchain technology is now taking the world by storm. The blockchain developers are working over this concept to help the users gain command over their assets and funds. Here is a detailed guide for the users to understand the concept and purpose of the decentralized identity in blockchain technology and its applications in the future.

What is Meant by Decentralized Identity?

As the name signifies, decentralized identity is an independent identity that is owned by the user itself. It is used to ensure the exchange of data in a trustable manner. Decentralized identity is a concept that is based on trust framework to mange the identity. It is actually a Web3 concept that is emerging gradually.

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People can have a control over their personally identified information (PII) and can easily manage and generate it by using the decentralized identity management. It enables the users to have an easy access to the administration and feasible approach to their credentials. The users do not need to carry any third-party validations such as a certificate, registry, or any identity provider.

The personally identified information (PII) is the body that provides the information to identify certain individuals directly or indirectly. PII is highly sensitive and private data related to any user. The data includes the age, citizenship, employment status, biometrics, address, credit card accounts and the credit history of the individual.

Moreover, to create the decentralized digital identity, the data from the electronic devices is also required in addition to the personally identified information. This data includes the search history, the passwords, usernames and buying history etc. of the user.

The users can get the control over their PII by using the decentralized identity and can only reveal the information whose verification is considered mandatory. The users and firms can interact with each other under safe and transparent circumstances using the decentralized identity management.

Issues with the Centralized Identity

The most important usage of decentralized identity is that it enables the users to get hold over their personal credentials and information. It provides them the right to use their information only where needed and provides them a user-friendly environment. Some of the problems existing in the centralized systems are mentioned below that makes decentralized identity management more important.

  • Proof of Identity

In the daily life, to get the access to some mandatory services such as education, healthcare services or banking, citizens are usually required to own a verifiable proof of existence. But a major chunk of the population existing in the world does not own an official proof of identity.

 This makes the people unable to own any property, to own a bank account, to find a job or to cast a vote, leaving them in a dangerous position socially. The social freedom of the people gets at stake when they cannot get access to their identification documents.

  • Safety

The already existing identification systems are centralized and considered to be unsafe and are usually avoided by the public. The cybercriminals are always ready to attack the centralized data bases are they are more prone to scams. There had been number of incidents reported in the past where the data of the investors has been stolen by the scammers due to lack of proper security measures.

  • Ownership

In the centralized systems, the users do not have the control over their information and credentials. The traditional form of digital identity does not give the access to the users to know about the value generated by their data. The PII of the users is controlled by other entities. So, any one user cannot claim to be the owner of the identity, making the system more complicated.

How Decentralized Identity Addresses These Issues?

The problems in the centralized identity mechanism are addressed by the decentralized identity by providing the control to the users over their assets. it allows the opportunity for the digital identity where being secured and keeping the users engaged, it can still be used at a number of platforms. A secured internet connection and a device to operate are the only requirements for using the decentralized identity network.

The existence of the identity is also validated in some of the decentralized identity systems. Decentralized identity secures and manages the PII of the users by providing it a consistent and tamper-proof infrastructure over the blockchain. The developers and users all over the world are finding it beneficial to manage their systems.

What is Meant by Self-Sovereign Identity?

The term self-sovereign identity is used when the personally identified information is managed by using the distributed data bases. The concept of decentralized digital identity is totally based on self-sovereign identity (SSI).

Traditionally, a third party manages a single identity, or a number of platforms contain a set of identities. However, digital wallets are owned by the users relying on SSI where they can store a number of personal credentials. These credentials can be easily accessed through various applications.

What are the Components of Self-Sovereign Identity?

The three components of SSI defined by the professionals are mentioned below.

  • Blockchain
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A decentralized digital database is known as blockchain. It is used to keep the record of the transactions being carried out by duplicating it and then sending it further to other computer networks so that they can keep a track of the data too. Creating multiple copies, makes it difficult for anyone to manipulate or tamper the data.

  • Verifiable Credentials (VCs)

The verifiable credentials are used to store and protect the data of the users by preventing it from tampering and verifying the data by using the SSI. Usually, the information that is recorded on paper is kept in the VCs. It may contain the credentials from license, passport or some other digital information that is not present in physical form such as owning a bank account.

  • Decentralized Identifiers (DIDs)

It is the kind of identifier that helps it users to own a digital identity that can be owned and verified cryptographically. It contains the abstract information related to any user that is demanded by the owner of DID such as the organization, model of the data etc. the user creates it and then owns it without the interference of any external organization.

These credentials are not integrated with any centralized authorities, identity registries or certificate providers.  No third-party permission is required in order to have a control over the digital identity of a user.

In addition to the SSI components, the infrastructure of the decentralized identity is composed of four more elements.

  • A holder who is responsible for receiving the verifiable credentials by creating a DID.
  • An issuer who is responsible for signing the verifiable credential by using the private key. After that, it is issued to the holder further.
  • A verifier who is responsible for checking the credentials of the user and has the access on the blockchain for reading the public DID of the issuer.
  • The decentralized identity wallets that are required to run the complete mechanism.

Working of Decentralized Identity

The wallets based on the blockchain that are encrypted and decentralized create the basis of the decentralized identity. These decentralized identity wallets are utilized by the users. These are actually the specialized applications that permit the users for the creation of their decentralized identifiers. Using these apps, the PII of the users can also be stored and their VCs can also be managed.

 This enables the users to store the data in a secured way instead of handing it over to multiple websites looked upon by mediators. The decentralized identity wallets are encrypted and safer more than the traditional wallets. They are secured by the keys that are generated cryptographically. These keys are non-accessible and stronger than the usual passwords.

 The cryptographic keys generated by the decentralized wallets are of two types, private and public. The private key is required for the authentication process and is kept safe in the wallet while a concrete wallet is distinguished by the public key. The identity of the users can be easily accessed through a single source using these decentralized wallets. This makes the process of transactions fast and feasible for the users.

 In addition to authenticating the data of users in a transparent manner, the decentralized identity wallets are also used to protect the data and communication of the users. The PII of the users and the identity credentials and details of the users that are required to carry out the transaction are stored in the Decentralized apps (dApps).

The accuracy of the information stored in the wallets can be proved by getting it signed by a number of reliable parties. The issuers of the digital identity such as a university, a government body or government employee can approve its authenticity. The decentralized identity can also be then represented to any third party by using the decentralized identity wallet.

Attestation Types in Decentralized Identity

Following are the approaches of attestation in decentralized identity systems.

  • Off-chain Attestation

Some users do not want to reveal all their information but storing the data off-chain may cause them to do so. Therefore, on-chain attestation is considered most suitable for them. These are coded attestations and contain the digital signatures of the issuer.

  • On-chain Attestation

Such kind of attestation are carried out while using the smart contracts on the Ethereum blockchain. In case one wants to sell an ownership, the company issues an on-chain attestation after reviewing all the background data. The user does not need to reveal any information during the process.

What are the Protocols Related to Decentralized Identity?

All the startup plans use decentralized identity principle and have their own characteristics and requirements. Though the decentralized space is still gaining pace, yet there are a number of services, softwares and initiatives available in the space that are eager to implement the decentralized wallets. Many well-known and reputable firms may also be working on this.

Identity Hubs such as 3Boxand uPort are also present that store the decentralized identity protocols. In the recent times, a uPort based on Ethereum has also created two new projects that are Veramo and Serto. Both of these projects are working on the aim of decentralizing the internet.

many retailors and vendors are also working on this project to inculcate the decentralized identity in the applications and systems to facilitate the users. The organizations like World Wide Web Consortium are also burning the midnight oil in normalizing the use of decentralized identity for the customers.

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What are the Advantages of the Decentralized Identity?

Some of the main pros of decentralized identity that makes it reliable to be used are mentioned below.

  • Control

The owners get the power over their digital identities and devices by using the decentralized identity. The users can own their identities completely and can have control over them. This enables them to only reveal the information that they want to and eliminates the requirement of approval from any third party. 

  • Security

The attacks by the cybercriminals can be reduced too by storing the PII. This makes the blockchain network a lot more secured and safer. The storage system is tamper-proof and cannot be manipulated by anyone, thus decreasing the risk of attacks by the external entities and the data to be stolen. 

The processing, collecting and storing of data by the organizations require a lot of regulatory mechanisms. Anyone who violates the laws and guidelines has to pay the penalty to the organization. All this is possible because of decentralized identity management that makes it easier to collect and store data safely.

  • Privacy

The principle of least privilege (PoLP) is applied using the decentralized identity privacy. PoLP is referred to the security of the information stored. This allows only limited and particular people to access to the credentials stored. Further it says that any gadget, entity or process should be given selective rights to carry out any task assigned.

  • Integrity of Data

The blockchain stores the data of the users making it impossible for any external entity to tamper or manipulate it. this mechanism is adopted by the decentralized identity mechanism so that the data remains safe and cannot be modified by anyone.

  • Reliability

The data undergoes the regulation process multiple times. Therefore, the data stored in the decentralized identity management is trustworthy and reliable.

  • Ease of Use

The decentralized identity management provides a user-friendly and engaging platform to the users so that they can feasibly manage and create their information and then store it in a way they want to.

What are the Disadvantages of the Decentralized Identity?

Some of the flaws and drawbacks of the decentralized identity management are mentioned below.

Though reaching the new heights of popularity, decentralized identity management is still a new process for many of the users in the blockchain domain. Many higher authorities and firms are still thinking out the way to install this mechanism in the public sector to facilitate the users.

Not owned by any single organization or entity still rises the security issues for most of the users using the decentralized identity management.

  • Interoperability

The creation of the standards that are interoperable and can be easily governed worldwide is also an issue related to decentralized identity management. The risk of inaccuracy of the data is still present when it comes to providing the duplicate copies of data to different networks.

What is the Future of Decentralized Identity?

Still struggling to gain momentum in the blockchain network, the decentralized world is capable of providing the users many facilities that cannot be achieved using the centralized systems. Now people are gaining awareness and demanding the control back over their data and information. The internet is being evolved through web3 technology and decentralization of the internet is also in process.

The decentralized identity holds the potential of completely transforming the landscape of the blockchain technology. In many of the daily life domains such as healthcare, education, banking and others, the startups are creating the proofs of concepts so that the decentralized identity process could gain pace.

The main aim is to create a system is that is technologically empowered and carries a reliable proof of existence and a trustworthy reputation. One of the hot topics in the technological industry these days, the Metaverse may keep the foundation of the decentralized identity as predicted by some of the professionals.

It is predicted that in the upcoming years, just like the NFTs, blockchain, biometrics and other virtual identities in the technological space, the decentralized identity will also make its mark soon.

Conclusion

Decentralized identity enables the people to own their credentials and information and use them in their way. It solves a number of problems created by the traditional centralized systems ensuring the safety and security of the data of the users.


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Mubashar Nawaz (United Arab Emirates)

Mubashar Nawaz is an experienced crypto writer working for Tokenhell. Having passion for writing, he covers news articles from blockchain to cryptocurrency.

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