Understanding Decentralized Identity: Its Importance, Benefits, and Challenges - Defiway
Exploring Decentralized Identity: A Comprehensive Guide photo
By: Natali

Exploring Decentralized Identity: A Comprehensive Guide

Table of Contents

In the modern world, our data is stored in so many places, from socials to banking websites. It leaves an enormous digital footprint, and many users want control of at least a part of their digital identity.

Luckily, it becomes possible with decentralized identity services. It’s a new technology that unlocks new opportunities for data control, allowing users to choose where and how to share their information.

Today I want to share how this technology can benefit many industries and help users become even more digitally aware. Buckle up, this journey will be fascinating!

What is Decentralized Identity?

Decentralized identity (DID) is a modern approach aimed at managing your digital footprint in a new way. In classic identity systems, users give their data to centralized services that have many usage rights of this private data.

In DID services, users can control their data. They can pick whether to share it with other services on a case-by-case basis. There can be any decentralized identifiers to choose from. It can be anything: from full name and mailing address to browser cache.

DID services are fully transparent, yet anonymous. Identity information is encrypted and protected with cryptography while stored on a public ledger. It means, that no one can change or remove your data retrospectively, as it often happens with traditional services. It also protects your info even more than in classic services.

If criminal hacks the centralized server, they get access to all information in it, which may include full names and real addresses. Decentralized identity blockchain services don’t store everything in one place, making it almost impossible to hack the account.

Centralized services are also censorship-prone, as they have a central authority point that controls users’ data. In this situation, users are very vulnerable to any possible breaches. In decentralized tools, only the user is accountable for managing data. If they share it with a scammer during the phishing attack, DID tools can’t help them with it because it was a user’s decision.

How Decentralized Identity Systems Operate

DID systems use many technologies in their workflow, and blockchain is one of the most important. It unlocks opportunities for tamper-proof and secure interactions between wallets, bridges, and other dApps. It is also a great way to store data in the long term.

I don’t want to overcomplicate this for you, so check this simplified overview of decentralized digital identity services:

  1. Users create a decentralized identifier (DID). A DID is an identifier associated only with the user. Usually, it’s a customized NFT file, since it allows you to modify and change information there. It acts like a username, distinguishing users.
  2. Users generate verifiable credentials. These documents contain crucial data about the user’s identity. You need to sign it with your private key. To verify the record, share your public key with another user and ask them to share YOUR private key to verify the data.
  3. Users share their verifiable certificates. Once your data is verified, you can share it with other users. They need to enter your public key to gain entry to the shared data.

Decentralized identity management systems don’t need any single authority point to verify or manage a user’s identity. It allows them to share personal information directly, without sharing it with any centralized service.

Decentralized Identity vs. Self-Sovereign Identity

Many people mistake Decentralized ID (DID) and self-sovereign identity (SSI) services, and I understand them. These concepts are so similar, yet so different.

Decentralized identity is a broader term referencing any identity system without a single authority point. Self-sovereign identity is a peculiar term that alludes to the DID systems where users have total control over their data. In SSIs, users can manage their profiles, generate verifiable credentials, and pick how to share their data.

Both DID and SSI are highly secure systems since they don’t have single authority points. However, SSI users have complete supervision, while the DIDs may control just some parts of the provided data.

DIDs may ask to share with them identification data. Some DIDs may also collect data about users’ browsing habits and sell them to advertisers. So you better read the terms and conditions document.

The Importance of Decentralized Identity

As I previously said, centralized systems are censorship-prone. They also don’t provide the needed level of user control and privacy. In centralized systems, users have little or no control over their identification information. They often collect more data than needed and sell it to third-party businesses without notifying users.

Centralized identity systems are also a prime hacker target, as they store personal data in a single location. If a centralized identity system is breached hackers could gain access to the personal data of thousands of people.

A decentralized identity market aims to address these issues by decentralizing data management. Users can pick to share different levels of identity data with different people, and they can modify access at any time. User data is not stored in a single location, making it more challenging to steal user identities.

Most DIDs are built on blockchain, which makes them transparent and verifiable. Users can check the service anytime they want.

Advantages of Adopting Decentralized Identity

A decentralized model of data storage has advanced security, far more difficult to compromise. I can’t say that it’s 100% impossible, since the user can lose their private keys or share them with the wrong people. However, it’s almost impossible to crack decentralized storage since the data is shattered and stored on multiple nodes simultaneously.

DID systems provide advanced user control over the data. You can set different levels of data exposure and modify it whether needed. DID systems are also privacy-preserving: you can manually set which information you want to share.

Decentralized authentication systems should be designed to be interoperable with each other. In means, that once you set your digital identity on your favorite service, you can use it on other platforms.

Real-world Applications and Use Cases

We, as a society, can use decentralized biometric authentification systems in online banking and digital payments industries to speed up identity identification processes. Decentralized identity services also benefit healthcare: patients will have more access to their medical records and unlock the ability to easily switch between insurance and clinics.

Decentralized authorization and identification services can also become a sort of storage for digital passports and visas, making international traveling even safer. It will also prevent uncomfort situations when traveller can’t pass customs because they forget their passport at home. They won’t need to carry their passports since data can be stored in the special app.

Wrapping Up

Decentralized identity (DID) is a developing technology that definitely changes the way we control our digital identities. It provides far more supervision for users over their data: they can pick what they want to share.

This approach has potential in the financial, healthcare, insurance, and even travel industries. As the technology continues to develop, we will see even more innovative and groundbreaking decentralized identity foundations and applications. At the same time, we will see even more data regulations.

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