Today’s conventional identity systems suffer from fragmentation, insecurity, and exclusivity. However, blockchain technology offers a more secure and unified way to manage and store digital identities. By providing an interoperable, tamper-proof infrastructure, blockchain can bring significant benefits to enterprises, users, and IoT management systems.
How Does Identity Function in Contemporary Society?
For Businesses
With the increasing adoption of user privacy-focused regulations such as GDPR, companies are tasked with managing sensitive user data alongside routine business information, creating new business risks. However, keeping data secure in tight-lipped vaults can hinder driving product improvements and attaining customer understanding. Many companies only invest in expensive and risky projects to achieve a balance between data security and business needs after receiving large fines or developing stronger IT capabilities.
For IoT Devices
The number of internet-connected devices is projected to grow from 7 billion to 22 billion by 2025. However, most IoT technologies lack appropriate identity and access management capabilities. Interconnected devices must securely identify and manage access to sensitive and non-sensitive data, but mismatching standards and security concerns pose challenges. IT vendors have started offering IoT management systems to address these gaps.
For Individuals
Identity is crucial for a thriving society and economy. Yet, physical forms of identification are not widely available, with approximately 1.1 billion people lacking a way to claim ownership over their identity. This puts them at a disadvantage, limiting their access to the financial system and opportunities for employment and property ownership. Even those with recognized forms of identification still lack complete ownership and control over their identities, with companies holding their data subject to frequent hacks and end-users having little recourse.
Why is Blockchain Essential for Identity Management?
The use of blockchain technology in identity management systems presents a solution to a number of critical identity-related issues. Currently, there are over 1.1 billion people worldwide without proper identification, with 45% of those individuals being among the poorest 20% of the population. Obstacles such as complicated paperwork, lack of accessibility, and insufficient knowledge regarding personal identification continue to hinder people’s ability to access traditional identification systems. This, in turn, prevents them from receiving important services such as enrolling in school, obtaining a job, or accessing government services. However, blockchain-based mobile identity solutions can provide a better alternative that is more suited to the needs of vulnerable citizens.
Data insecurity is another significant issue related to identity management. Traditional identification systems store sensitive information in centralized government databases that are often supported by legacy software, making them appealing targets for hackers. Moreover, personally identifiable information (PII) is the most targeted data for data breaches, accounting for 97% of all breaches in 2022. Despite increased efforts to improve cybersecurity, 2.8 billion consumer data records were exposed at an estimated cost of over $654 billion in 2022.
Fraudulent identities are also a problem in the current digital identity landscape. The fragmentation of users’ digital identities across various platforms and the lack of a standardized approach to sharing data between these platforms make it easy to create fake identities. This creates opportunities for fraud and can lead to inflated numbers and lost revenue. In addition, the weak link between digital and offline identities facilitates the spread of false information such as “fake news,” which poses a significant threat to democracy.
Fortunately, advancements in smartphones, cryptography, and blockchain technology have provided new tools to create innovative identity management systems. By utilizing decentralized identifiers (DIDs) and potentially incorporating self-sovereign identity (SSI), new digital identity frameworks can be built to address these critical identity-related issues
Ethereum’s DIDs: How They Work
Digital Identity: Understanding the Concept
Digital identity refers to a person’s online persona, which is shaped by the personal information they share and the digital traces they leave behind while using the internet. This may include a pseudonymous profile associated with their device’s IP address or a unique ID generated at random. Data points such as usernames, passwords, online purchase history, date of birth, online search activities, and medical history can all contribute to the formation of a digital identity. Biometrics, behavioral patterns, and biographical information are the components that comprise an individual’s digital identity
Generating Digital Identity: An Overview of the Creation Process
One way to create a digital identity is through signing up for a self-sovereign identity and data platform, where a Decentralized Identifier (DID) is created and registered. As part of this process, a user generates a set of private and public keys. To ensure security, public keys linked to the DID can be stored on a blockchain, in the event of key compromise or rotation. While supplementary information like attestations can be anchored on the blockchain, it is important not to store the complete data on-chain to adhere to privacy regulations and scalability
Decentralized Identifier: Explained
A decentralized identifier, also known as a DID, is an identifier that provides pseudo-anonymous identification for entities such as individuals, companies, and objects. Each DID is secured by a private key, ensuring that only the owner of the key can prove ownership or control of their identity. To limit tracking across different aspects of their lives, a person may have multiple DIDs. For example, a gaming platform may have one DID associated with it, while a credit reporting platform may have an entirely separate DID.
DIDs are often accompanied by a set of attestations or verifiable credentials issued by other DIDs that attest to specific characteristics, such as age, location, diplomas, and payslips. These credentials are cryptographically signed by their issuers, and DID owners can store them themselves instead of relying on a single profile provider such as Google or Facebook. Depending on context and intended use, non-attested data such as browsing history or social media posts may also be associated with DIDs by the owner or controllers of that data.
Ensuring Security in Decentralized Identities: A Closer Look
Ensuring the security of decentralized identities involves implementing cryptography as a crucial component. Cryptography enables the owner to keep their private keys confidential while widely distributing their public keys. This combination serves two critical purposes. Firstly, authentication is achieved when the public key validates that the sender of the message is the owner of the corresponding private key. Secondly, encryption is utilized, where only the holder of the corresponding private key can decrypt messages encrypted with the public key.
Employing Decentralized Identities: What Does it Look Like
When an individual links their verified identity to a decentralized identity, they can present a QR code as proof of their identity to access specific services. The service provider then authenticates the individual’s identity by verifying the proof of ownership or control of the provided attestation, which was previously associated with a DID. The individual then signs the presentation with the private key that corresponds to their DID, and if the authentication is successful, access is granted.
Blockchain’s Role in Identity Management: Use Cases and Benefits
What are some of the potential applications of blockchain in managing digital identity? Here are some use cases I have identified:
- Self-Sovereign Identity (SSI): A model where individuals and businesses have control over their own identity data. This means that they can store their own identity information on their own devices, choosing which pieces of information to share with validators without relying on a central repository of identity data. With SSI, identity can be created independently of nation-states, corporations, or global organizations.
- Data Monetization: As more attention is paid to who owns and should profit from user-generated data, blockchain-based SSI and decentralized models offer users greater control and open the door to data monetization. Data monetization refers to the use of personal data for economic benefit. Personal data has value, but insights derived from personally identifiable data can substantially increase the value of the underlying data. With SSI, individuals could monetize their personal data, such as by renting it to AI training algorithms or selling it to advertisers, while also having the option to keep their data hidden and protected from corporations or governments.
- Data Portability: Several governments have granted users the right to data portability, which enables users to transmit their personal data from one controller to another, when technically feasible. This right can enhance user experience by reducing the need to re-verify identity across different services and platforms. With decentralized identifiers (DIDs) and verifiable credentials, it is possible to migrate identities anchored on one system to another with ease. Data portability also allows for reusable credentials, enabling users to quickly re-verify themselves while meeting regulatory KYC requirements. This can help reduce customer onboarding time and avoid drop-out rates, while also cutting costs in the financial sector by simplifying the identity verification process.
Blockchain: Fueling Economic Growth Through Innovation
Blockchain is a distributed ledger technology that allows for the secure, transparent and tamper-proof storage of data, transactions and digital assets. By leveraging blockchain, digital ID can be created that is decentralized, secure, and verifiable, and can enable increased economic contribution in several ways.
Firstly, a decentralized digital ID can help to remove barriers to access financial services and increase financial inclusion. By allowing individuals to verify their identity in a secure and tamper-proof way, blockchain-based digital ID can help individuals who may not have traditional forms of identification, such as a birth certificate or a passport, to access financial services and participate in the economy. This can help to stimulate economic growth by increasing the pool of potential customers and participants in the financial system.
Secondly, blockchain-based digital ID can help to reduce fraud and increase trust in transactions. By providing a secure and verifiable way to verify identity and transactions, blockchain can help to reduce fraud and increase trust in transactions, particularly in areas such as e-commerce and supply chain management. This can help to increase economic contribution by reducing losses due to fraud and increasing the efficiency of transactions.
Thirdly, blockchain-based digital ID can enable new forms of economic activity and innovation. By providing a secure and decentralized platform for identity verification and transaction management, blockchain can enable the development of new business models and services that were previously not possible. For example, blockchain-based digital ID can enable peer-to-peer lending platforms, decentralized marketplaces and new forms of payment systems that can increase economic contribution and create new opportunities for economic growth.
Overall, blockchain-based digital ID has the potential to significantly increase economic contribution by removing barriers to financial inclusion, reducing fraud and increasing trust in transactions, and enabling new forms of economic activity and innovation. As such, blockchain technology is expected to play a significant role in driving economic growth in the coming years.
The Advantages of Decentralized Identity: A More Secure and Private Future
In my state, regulations like the California Consumer Privacy Act (CCPA) have raised the bar for identity protection and necessitate modern identity solutions. To address these concerns, governments are increasingly turning to blockchain technology to safeguard personally identifiable information (PII) and provide identities to the unidentified.
Blockchain technology offers several advantages, including:
- Decentralized Public Key Infrastructure (DPKI) is the foundation of Decentralized Identity. Blockchain makes DPKI possible by creating a tamper-proof and trustworthy way to distribute the verification and encryption keys of identity holders. With Decentralized PKI, anyone can create or anchor cryptographic keys on the Blockchain in a secure and chronologically ordered manner, allowing others to verify digital signatures or encrypt data for the corresponding identity holder. This innovation eliminates the need for a centralized certificate authority (CA) and enables various use cases, such as verifiable credentials (VC).
- Decentralized Storage Identities anchored on blockchains are inherently more secure than those stored on centralized servers. By combining the cryptographically secure Ethereum blockchain with distributed data storage systems like InterPlanetary FileSystem (IPFS) or OrbitDB, existing centralized data storage systems can be disintermediated while maintaining data integrity and trust. Decentralized storage solutions, which are tamper-proof by design, limit unauthorized data access by an entity that might exploit or monetize an individual’s confidential information.
Secure identity data management relies heavily on decentralized storage. In a decentralized system, credentials are often stored directly on the user’s device or securely held by private identity stores, known as identity hubs. Self-sovereign identities are created when the user has full control over access to the data, allowing for more interoperability and protection against being locked into one platform. - Manageability and Control in centralized identity systems, the identity provider is typically responsible for securing identity data. However, in a decentralized identity framework, the user assumes this responsibility and can implement their own security measures or outsource to third-party services. Decentralized identity solutions built on blockchain technology also make it more difficult and costly for hackers to attack individual data stores, further enhancing security.
Final Thoughts
In conclusion, digital identity is a crucial aspect of modern society that has significant social and economic implications. As technology continues to advance and our lives become increasingly digitized, the need for secure and reliable digital identity solutions becomes even more pressing. Fortunately, blockchain technology has emerged as a powerful tool in this regard, offering a decentralized and tamper-proof way to manage digital identities.
Through blockchain-based digital identity systems, individuals can have greater control over their personal information, while organizations can benefit from streamlined identity verification processes and enhanced security measures. This can lead to a more efficient and trustworthy digital economy, with reduced fraud and increased opportunities for innovation.
Moreover, blockchain-based digital identity solutions have the potential to benefit society in other ways as well. For example, they can help to increase financial inclusion by providing secure and accessible banking services to underserved populations. They can also facilitate humanitarian aid efforts by enabling the efficient and transparent distribution of resources to those in need.
Overall, the role of blockchain technology in improving digital identity is clear. By leveraging its unique features such as decentralization, immutability, and transparency, we can create a more secure, efficient, and equitable digital society. As we continue to explore and refine these technologies, we have the potential to unlock even greater social and economic benefits for all.
FAQs
- What is blockchain technology?
Blockchain technology is a digital, decentralized ledger system that allows for the secure and transparent recording of transactions. Each block in the chain contains a unique cryptographic code that links it to the previous block, creating an unbreakable chain of data that cannot be altered or manipulated without detection. - What is digital identity?
Digital identity refers to the set of information that uniquely identifies an individual or entity online. This information can include personal details such as name, address, and date of birth, as well as digital identifiers such as usernames, passwords, and biometric data. - How can blockchain technology be used to enhance digital identity security? Blockchain technology can be used to enhance digital identity security by providing a decentralized, tamper-proof system for storing and verifying identity data. By creating a blockchain-based digital identity system, users can maintain control over their personal data and limit the risk of data breaches and identity theft.
- What are some potential use cases for blockchain-based digital identity systems?
Blockchain-based digital identity systems have the potential to revolutionize a wide range of industries, from finance and healthcare to government and e-commerce. Some potential use cases include secure online voting, streamlined healthcare data management, and secure digital asset management. - What are some of the challenges facing the adoption of blockchain-based digital identity systems?
Some of the challenges facing the adoption of blockchain-based digital identity systems include regulatory and legal hurdles, technical complexity, and the need for interoperability with existing systems. Additionally, the security and privacy implications of storing sensitive data on a decentralized network must be carefully considered and addressed. - How can blockchain technology be used to prevent identity fraud?
Blockchain technology can be used to prevent identity fraud by creating a decentralized, tamper-proof system for storing and verifying identity data. By using cryptographic hashes to link each new transaction to the previous one, blockchain technology creates an immutable record of all identity-related transactions, making it much more difficult for fraudsters to manipulate or forge identity data. - What are some of the potential benefits of using blockchain technology for digital identity management?
Some potential benefits of using blockchain technology for digital identity management include increased security and privacy, greater transparency and accountability, and improved efficiency and cost savings. By creating a decentralized, tamper-proof system for storing and verifying identity data, blockchain technology can help to reduce the risk of identity theft and fraud, while also streamlining identity verification processes and reducing administrative overheads.