- Decentralized identity is a type of management that allows people to control their own digital identity without depending on providers.
- Decentralized digital identity is a system that aims to rebuild the current centralized identity management by making use of blockchain technology to make it decentralized.
- The current prevailing approach forces users to give up their privacy.
The world is changing in the direction of decentralization and consequently concepts like Decentralized Identity is critical for everyone to handle.
Below you will find a detailed guide on what decentralized identity is and why it is considered as the backbone of Web3.
Who are you on the internet?
Let’s start by defining the identity as the set of data and information that define you as a person. That is, that which differentiates you from others.
People rely on their identity when proving their income for credit, trying to get on a flight, or even logging into a website. And, here, another concept becomes relevant: Digital Identity, being the Internet version of a person’s physical identity.
Digital identity is made up of a large amount of data that we provide when interacting on the Internet. Some of the data that make up the digital identity are: username, photos on social networks, search history, social security or identification number, search history, biometric data, among others.
Neverthelessall this information that characterizes the person is scattered on hundreds of different websites. That is, people share different data on different platforms. The data on LinkedIn is not the same as on Facebook, and, most importantly, the person voluntarily gives their information to these companies, losing power over it.
This is where the concept of Decentralized Identity comes in.
Users generate and control their own digital identity
People need to verify their identity on a daily basis, that is a fact. However, current systems for authenticating users and building trust are inconvenient to say the least. The current prevailing approach forces users to give up their privacy.
Decentralized identity is a type of management that allows people to control their own digital identity without depending on providers. In other words, it seeks to give the user back control over their personal information while strengthening the bonds of trust.
As some may imagine, it is a concept that was born under the framework of Web3. Web3 is the potential future version of the Internet that is based on blockchain technology.
The backbone of Web3 is decentralization. This implies that, unlike Web2 where people access the Internet through companies like Google, users will now own and govern sections of the Internet.
How is it achieved? Thanks to the blockchain, Web3 does not require “permission” (eliminating central authorities) and “trust” (eliminating intermediaries).
So decentralized digital identity is a system that aims to rebuild the current centralized identity management by making use of blockchain technology to make it decentralized.
In accordance with microsoft“A decentralized approach to identity helps people, organizations, and things interact with each other transparently and securely, in a web of identity trust.”
How does blockchain-based decentralized identity work?
A user must use a wallet to manage their identity. It is a wallet like a cryptocurrency wallet with the difference that it stores your credentials and personal information.
If you know how u workna crypto wallet, will know that you are give the user a cryptographic key that gives them ownership over it and every transaction you make will be signed with your private key. This feature is precisely what will give the user true ownership of their identity.
If you want to learn how a crypto wallet works, we invite you to review the guide specially designed by Bitcoin Mexico.
Thenthe wallet will store verified identity details: Name, age, bank accounts, employment, citizenship, credit history, address, among others. This data is verified by being signed by various trusted authorities.
In this way, Users have the ability to disclose all or certain aspects of their identity and personal information to third parties in their sole discretion. This is known as “self-sovereign identity”
Pillars of self-sovereign identity
The main components for self-sovereign identity are:
- blockchain: It is a decentralized digital database. An important aspect is that the registration in the blockchain is done in such a way that it is difficult or impossible to modify the stored information.
- Verified and protected credentials: It is the cryptographically protected information of the users. For example, information found on physical credentials, such as a passport, or digital credentials without physical equivalents, such as a bank account.
- Decentralized Identifiers (DID): Allows users to have a cryptographically verifiable decentralized digital identity. Basically the identity wallet receives a DID, that is, a unique identifier that represents the user on the Internet.
What changes with the Decentralized Identity?
Anow that it is the user who controls their information at their discretion, but what does this imply? Frictions between users and entities are potentially reduced when executing transactions that require private information. For example, applying for a loan currently requires a myriad of paperwork that takes time to review. With decentralized identity, the request for a loan can be faster and with less friction.
Also, less information stored in databases potentially means less chance of data being leaked.
Why isn’t decentralized identity currently used? It is basically a new technology and, therefore, is in full development. Likewise, there are those who are reluctant to adopt technology that reduces their access to customer data.
Benefit of decentralized identity
- Increases individual control of private information.
- Information can be verified without relying on centralized authorities or third-party services. This potentially reduces costs by cutting out middlemen.
- The Blockchain allows to increase trust between the parties, as well as provides guarantees.
- Users will be able to share their personal information no matter where they are!
- The data recorded in a Blockchain is immutable and less vulnerable to attacks
Why is it so important for Web3?
Decentralized identity is considered as one of the latest technologies that can help drive Web3.
As mentioned above, Web3 promises to offer a decentralized network, security and control of data, among other features, but to achieve this, people must have an identity in it and, of course, it must be decentralized.. So some of the functions of decentralized identity within Web3 are:
- Non-Fungible Tokens (NFTs): Decentralized identity can help prove who created an NFT and who owned or owns it. It also helps to know who has at least one NFT from a collection and thus allows them to access blocked content.
- Metaverse: This is perhaps the most obvious area of Web3 where decentralized identity is key. It allows a complete user experience since it facilitates from the creation of profiles to the transactions within the metaverse.
Disadvantages of decentralized identity
It is a nascent technology and as such there are still some concerns that need to be addressed. For example, it lacks adoption as governments and organizations continue to assess how to implement decentralized identity technology and whether they really want to do it this way.
In this same sensethere are still no regulations specially designed for this type of identity management and last but not least, there are still debates about interoperability.
Let us remember that a large part of the blockchains that exist are not interoperable with each other and, therefore, this problem is hereditary for the decentralized identity since this technology is its base.
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