Although the decentralized identity space is still in its infancy, it is obvious that it has the potential to improve on the identity management system that is now in place. The development of Web3, the upcoming internet standard, is accelerating. Many people are regaining control over their data thanks to decentralization and blockchain technology.

The decentralized identity with blockchain technology can make identity management decentralized, simple, and seamless, fundamentally changing the landscape, even if the digital identity field is still in its infancy. The prospects for decentralized identification are expanding even as businesses and DID projects continue to create proof of concepts for decentralized identity in government, banking, healthcare, and other industries.

The objective is to empower users online while helping them establish and spread a verified reputation and proof of existence. According to analysts, one of the newest and trendiest trends in technology, the Metaverse, may play a significant role in the growth of decentralized identities. Decentralized identity will soon be accessible to the general public in the thriving Web3 ecosystem, which will boom in the ensuing years, thanks to the advancement of avatars in the form of nonfungible tokens serving as users’ digital identities within virtual spaces, soulbound tokens, blockchain, biometrics, and related cutting-edge technologies.

Learn about decentralised identity and why it matters 👇

— Binance (@binance) September 19, 2022

What is Decentralized Identity? How do decentralized identities work?

A decentralized identity is a self-owned, independent identification that permits trusted data sharing.

A developing Web3 idea called decentralized identity is built on a framework of trust for identity management. A method of identity and access management that enables people to create, maintain, and control their personally identifiable information (PII) without the help of a centralized third party like a registry, identity provider, or certification authority is known as decentralized identity management.

PII stands for personally identifiable information, a collection of details about particular people that can either be employed to identify them either directly or indirectly. It typically incorporates the name, age, address, biometrics, citizenship, employment, credit card accounts, credit history, etc. In addition to PII, data from online electronic devices, such as usernames and passwords, search histories, purchasing histories, and others, are included in the information that makes up a decentralized digital identity.

Users can manage their own PII and submit only the data needed for verification using a decentralized identity. Thanks to decentralized identity management, users, companies, and things can engage with one another securely and transparently.

1. Decentralized identity: Why is it important?

A decentralized identity attempts to provide people with legitimate identification documents, total ownership of their identities, and user-friendly security.

Citizens frequently require verifiable proof of existence to access basic services like banking, healthcare, and education. Unfortunately, 1 billion individuals worldwide still lack a recognized identity document, according to Worldbank statistics. Unable to vote, register, open a bank account, own property, or find employment, a sizeable portion of the population lives in precarious circumstances. People’s freedom is constrained by their inability to obtain identifying documents.

Centralized identification databases are in danger because hackers frequently choose them as their top targets. Traditional centralized identifying systems are also unreliable, disjointed, and exclusive. We occasionally learn about breaches and assaults on centralized identity management systems in which tens of millions of client records from well-known shops are stolen.

The ownership problems are still present. Traditional digital identity users still do not fully own and control them, and they frequently are not aware of the value that their data produces. In a centralized setting, third parties store and manage PII. As a result, consumers find it harder, if not impossible, to claim control of their identities.

Decentralized digital identity tackles these problems by enabling the usage of a single digital identity across several participating platforms without compromising user experience or security. Users need an internet connection and a device to access a decentralized identification system.

Additionally, blockchain and distributed ledger technologies, in particular, authenticate the existence of a valid identity in decentralized identification systems. Blockchains enable PII’s secure management and storage by offering a consistent, interoperable, and tamper-proof architecture, with significant advantages for businesses, users, developers, and Internet of Things (IoT) management systems.

Also Read: Top 5 Effects Blockchain Has On Digital Identity

2. Self-sovereign identity: What is it?

The term “self-sovereign identification” relates to the management of PII using distributed databases.

Decentralized identity is based on the principle of self-sovereign identity (SSI). Users of SII have digital wallets in which numerous credentials are saved and accessible through dependable applications, as opposed to having a set of identities across several platforms or a single identity handled by a third party.

As defined by experts, the three pillars of SSI are blockchain, verifiable credentials (VCs), and decentralized identities (DIDs).

Three components of one’s sovereignty (SSI)

Blockchain is a decentralized digital database that records information in a way that makes it difficult or impossible to edit, hack, or cheat. It is a ledger of transactions duplicated and distributed among network computers.

Second, some VCs use SSI and safeguard user data by tamper-proof with cryptographically encrypted and verified credentials. They can represent data on paper credentials like a passport or driver’s license and digital credentials without a physical counterpart, such as ownership of a bank account.

Last, SSI incorporates DIDs, a novel identifier that enables users to have a decentralized digital identity that can be verified cryptographically. DIDs allow people to demonstrate control over their digital identity without needing authorization from a third party because they are created to be detached from centralized registries, identity providers, and certificate authorities. They are user-created, user-owned, and unaffiliated with any company. A DID can be any subject, as decided by the DID’s controller, including a person, group, data model, abstract object, etc.

Decentralized identity architecture includes four other components besides SII, which is based on blockchain, DIDs, and VCs. They are a verifier who can read the issuer’s public DID on the blockchain and a holder who creates a DID and receives the verifiable credential. An issuer signs a verifiable credential with their private key and issues it to the holder. An additional component of a decentralized identity architecture is the unique decentralized identity wallets that power the entire system.

3. The operation of decentralized identity

Using decentralized, encrypted blockchain-based wallets is the cornerstone of decentralized identity management.

Instead of holding identity information on various websites controlled by intermediaries, users in a decentralized identity framework use decentralized identity wallets, which are specialized apps that let them generate decentralized identities, store PII, and manage VCs.

These decentralized identity wallets also have distributed architecture and encryption. Instead of using passwords to access them, non-phishing cryptographic keys are used, which have no vulnerabilities. a set of private and public cryptographic keys are generated via a decentralized wallet. While the private key, which is kept in the wallet, is required for authentication, the public key identifies a specific wallet.

Decentralized identity wallets secure user conversations and data while transparently authenticating users. Decentralized apps (DApps) hold personal information (PII), verified identity information, and other data necessary to build trust, demonstrate eligibility, or simply execute a transaction. These wallets make it quicker and simpler for users to grant and withdraw access to identification information from a single source.

Additionally, the wallet contains information verified as accurate by the signatures of numerous reliable individuals. Digital identities, for instance, may be approved by issuers like colleges, companies, or governmental agencies. Users can provide identification documentation to any third party by using a decentralized identity wallet.

4. Decentralized identity: advantages and disadvantages

Decentralized identity management offers four primary advantages: control, security, privacy, and simplicity. The key issues, however, are interoperability, a low adoption rate, and a lack of regulation.

Control offers digital devices and identity owners authority over their digital identifiers. Users can choose which information to reveal and can substantiate their claims independently because they have full control and ownership over their identities and credentials.

By storing PII, security decreases attack surfaces. Blockchain is a secure, adaptable, and impenetrable decentralized storage system that uses encryption to reduce the likelihood that an attacker can obtain unauthorized access and steal or profit from user data.

Organizations can lower security risks by using decentralized identity management. Organizations are subject to rules based on how they gather, use, and store user data. Organizations are subject to penalties and fines even for inadvertent regulation infractions or data breaches. They have the chance to gather and keep fewer identity data thanks to decentralized identity management, which will make their compliance obligations simpler and lower the danger of hacker attacks and information misuse.

Entities can use the principle of least privilege (PoLP) to specify limited or selective access for identification credentials. PoLP is a phrase associated with data security. It states that each individual, device, or process should only have the minimal rights required to carry out the work. Users may simply create and manage their identities with the help of user-friendly neoteric decentralized identity apps and platforms thanks to decentralized identity technology.

There are several problems and disadvantages, but adoption is the main one. While most non-tech users have never even heard of this phenomenon, governments and organizations are still trying to figure out how to apply the decentralized identification system at scale.

Other significant difficulties are eradicating old systems and rules and developing globally interoperable standards and governance. Identity data fragility, which refers to duplication, chaos, and accuracy in identity management, is still a concern.

5. Protocols for decentralized identity

Several identity protocols cover decentralized identification, each of which has unique characteristics, from crypto startups to major tech solutions. Although decentralized identity technology is still relatively young, many efforts, participants, decentralized identity wallet implementation software, and support services are available. From the Hyperledger open-source developing community to some of the biggest names in the sector, they span a variety of decentralized identification protocols and enterprises.

Identity hubs are private identity storage and decentralized identity protocols like uPort or 3Box. Veramo, an open source framework for IDs and credentials, and Serto, both of which continue the goal of decentralizing the internet, recently split off from the Ethereum-based uPort platform. In response, 3Box Labs jumped right into the development of Identification Index (IDX), a cross-chain protocol for decentralized identity and interoperable data, and Ceramic Network, a decentralized data network that delivers unbounded data composability to Web3 apps.

Other DID platforms include ION, a layer-2 open public decentralized identification network based on the deterministic Sidetree protocol and running on top of the Bitcoin (BTC) blockchain. Everyone can issue and create solutions for decentralized identity and verifiable credentials that are instantaneously verifiable utilizing blockchain thanks to the well-known Polkadot (DOT) ecosystem player Dock protocol. A self-sovereign digital identity can be created, managed, and controlled using the open-source, decentralized public identity network metasystem known as the Sovrin Network. The cross-chain platform for global authentication and authorization on a blockchain is called ORE ID.

The Humanoid project combines blockchain and crypto-biometrics. It offers liveness detection checks that make it easier to recognize actual, distinct people when logging into wallets and services and offer Sybil resistance to any decentralized identity network.

Through the W3C-DID and VC projects, the World Wide Web Consortium offers standards for identity technology and interoperability. In addition, the Decentralized Identity Foundation and the Trust Over IP Foundation both have many vendors who offer decentralized identity wallets or assist enterprises in integrating technology into their products. These groups are putting forth a lot of effort to standardize and define decentralized identification.