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Blockchain in Digital Identity

People, in this world, seek their identity (ID) within their own world, as identity is a fact of being who or what a person or thing is. In fact, identity is the quality, belief, personality, looks, and expressions that make a person self-identified.

In this digital world too, we need our individual identities to make ourselves identified, which we can call “digital identity,” as technology has now made it easier for people to explore and share their identities.

We can say that technological advancements in the digital space have revolutionized every aspect of our lives, from shopping to collaborating with colleagues to keeping in touch with friends to entertainment to managing our finances, and what’s not? With data driving the world today, digital identity is critical to most business and social transactions. This governs the interaction of users in the digital world.

As individuals, we push the burden of managing multiple online IDs and passwords, while also handling a host of documents, including passports, driver’s licenses, Social Security cards, and medical insurance cards.

What is Digital Identity?

digital identity is an information on an entity used by computer systems to represent an external agent. That agent may be a person, organization, application, or device. Digital identity arises organically from the use of personal information on the web and from the shadow data created by the individual’s actions online. A digital identity may be a pseudonymous profile linked to the device’s IP address, for example, a randomly-generated unique ID. Data points that can help form a digital identity include usernames and passwords, drivers’ license numbers, online purchasing history, date of birth, online search activities, medical history, etc. Biometrics, Behavioral, Biographic are the modals that make up a person’s identity.

How is Digital Identity Created?

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In one example, users sign up for a self-sovereign identity and data platform to create and register a DID (Decentralized identifier). During this process, the user creates a pair of private and public keys. Public keys associated with a DID can be stored on-chain in case keys are compromised or are rotated for security reasons. Additional data associated with a DID such as attestations can be anchored on-chain, but the full data itself should not be stored on-chain to maintain scalability and compliance with privacy regulations.

So, in this article, we are going to discuss blockchain in digital identity!

At some point, the Internet overtook people’s ability to manage their identities online. As the world enters a more data-conscious era, innovators in the tech industry believe that blockchain technology could be the solution.

One of the most common goals across all blockchain-based identity projects is to put data back into the hands of those who created it. However, a decentralized identity network would look very different from the way data is obtained now.

How Does Identity Work Today?

So, before we go directly to the blockchain and digital identity, let’s first discuss how identity works today:

  1. For Companies: Companies often collect sensitive information about their users and store them alongside less-sensitive routine business data. This creates new business risks with the rise of user privacy-centric regulations such as GDPR and the shifting industry focus to corporate IT responsibility. When these data are relegated to tight-lipped data vaults, they become less useful in driving product improvements and attaining true customer understanding. Only after receiving large fines or developing stronger IT capabilities will many enterprises pursue expensive and risky projects to achieve the right balance between data security and business needs.

  2. For IoT Devices: Most IoT technologies do not incorporate appropriate identity and access management capabilities, not unlike the early Internet which consisted solely of trusted institutions. Interconnected Internet of things (IoT) devices and objects must identify sensors, monitors, and devices, and manage access to sensitive and non-sensitive data in a secure manner. There are about 7 billion Internet-connected devices. This number is expected to grow to 22 billion by 2025.

  3. For Individuals: Identity is integral to a functioning society and economy. Having a proper way to identify ourselves and our possessions enable us to create thriving societies and global markets. At its most basic level, identity is a collection of claims about a person, place, or thing. For people, this usually consists of first and last name, date of birth, nationality, and some form of a national identifier such as passport number, social security number (SSN), driving license, etc. These data points are issued by centralized entities (governments) and are stored in centralized databases (central government servers). Physical forms of identification are not widely available to every human beings for various reasons. Approximately, 1.1 billion people worldwide don’t have a way to claim ownership over their identity. This leaves one-seventh of the world’s population in a vulnerable state – unable to vote in elections, own property, open a bank account, or find employment. The inability to attain identification documentation threatens a person’s access to the financial system and in turn, limits their freedom.

Why do we need Blockchain for Identity?

There are three main reasons why we need blockchain for identity:

  1. Inaccessibility: Approximately, 1.1 billion people around the world have no proof of identity, and 45% of those without an identity are among the poorest 20% on the planet. Inconvenient identification paperwork processes, expenses, lack of access, and the simple lack of knowledge around personal identity are primary roadblocks that keep over a billion individuals outside of traditional identification systems. Without possessing physical identities, one cannot enroll in school, apply for jobs, get a passport, or access many governmental services. Having an identity is crucial to gaining access to the existing financial system. Conversely, 60% of the 2.7 billion unbanked people already own mobile phones, which paves the way for blockchain-based mobile identity solutions which better suit the needs of vulnerable citizens. 

  2. Data Insecurity: At present, we store our most valuable identification information on centralized government databases supported by legacy software operate with numerous single points of failure. Large, centralized systems containing the personally identifiable information (PII) of millions of user accounts are incredibly appealing to hackers. A study showed that PII is the most targeted data for breaches, comprising 97% of all breaches in 2018. Despite regulatory legislation and enterprise efforts to increase cybersecurity, 2.8 billion consumer data records were exposed at an estimated cost of more than $654 billion in 2018. 

  3. Fraudulent Identities: Additionally, the user’s digital identity landscape experience is exceptionally fragmented. Users juggle various identities associated with their usernames across different websites. There is no standardized way to use the data generated by one platform on another platform. Furthermore, the weak link between digital and offline identities makes it relatively easy to create fake identities. Fake identities create fertile ground for the phenomena of counterfeit interaction, which can help in the execution of fraud and lead to inflated numbers and lost revenue. In society, this vulnerability facilitates the creation and dissemination of evils like “fake news,” which poses a potential threat to democracy. Due to the increasing sophistication of smartphones, advances in cryptography and the advent of blockchain technology, we have the tools to build new identity management systems; digital identity frameworks based upon the concept of decentralized identifiers (DIDs) – potentially including a new subset of decentralized identities known as self-sovereign identity (SSI).

Blockchain and Biometrics

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There are some broader ecosystems you should know, which help people to map physical IDs to their digital IDs:

  1. Secure and seamless travel: With the power of blockchain-based digital identity and biometrics, we can transform the future of international travel and beyond.

  2. Background checks and training records: Reduce repetition in background checks and build trusted records of education and professional certificates and licenses.

  3. Healthcare records: Enables patients to share and manage their own health records so that they can easily get healthcare services and prescriptions anywhere.

  4. Streamlined KYC: Accelerate the Know Your Customer (KYC) process with client consent through attestations from the network of banks.

  5. Proof of ownership or insurance: Attestations of property ownership, for instance, used to get insurance or file taxes.

Organizations use More Complex Identity Data

A blockchain enabled digital identity may assist in critical areas:

  1. Securing new models: Desire to build a more personalized relationship and offerings with the consumer but need to ensure that the person is really who they claim they are.

  2. Protecting against fraud: Identity fraud is growing, and cyber-attacks are now normal. Organizations and consumers need to know that their data is safe.

  3. Maintaining compliance: Regulations on data privacy are getting more stringent globally, making compliance difficult and expensive to manage.

Use-Cases of Blockchain in Identity Management

  1. Self-Sovereign Identity: Self-sovereign Identity (SSI) is the concept that people and businesses can store their own identity data on their own devices; choosing which pieces of information to share with validators without relying on a central repository of identity data. These identities could be created independent of nation-states, corporations, or global organizations. 

  2. Data Monetization: Data Monetization refers to using personal data for quantifiable economic benefit. Data on its own has value, but insights derived from personally identifiable data substantially increases the value of the underlying data. There are quintillion bytes of data created each day, by 4.39 billion Internet users. Over 60% of the global GDP is expected to be digitized by 2022, which means personal data will continue to increase in value. 

  3. Data Portability: Data portability pertains to the data subject’s right to have their personal data transmitted directly from one controller to another, when technically feasible. This right has the potential to enhance the user experience, cutting down on the need to re-verify their identity across various services and platforms. With DIDs and verifiable credentials, it is possible to migrate identities that were anchored on one target system to another with ease. Data portability reduces friction for the user while simplifying the sign-up process which increases user adoption. DID data portability also allows for reusable credentials, where users can quickly re-verify themselves while meeting regulatory Know Your Customer (KYC) requirements. This is especially useful to reduce customer onboarding time that avoids drop-out rates and cut costs in the financial sector by skipping the inconvenient identity verification process where usually a lot of documents need to be provided and checked.

Benefits of Decentralized Identity

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Blockchain technology offers the following benefits:

  1. Decentralized Public Key Infrastructure (DPKI): DPKI is the core of Decentralized Identity, as blockchain enables DPKI by creating a tamper-proof and trusted medium to distribute the asymmetric verification and encryption keys of the identity holders. Decentralized PKI (DPKI) enables everyone to create or anchor cryptographic keys on the blockchain in a tamper-proof and chronologically ordered way. These keys are used to allow others to verify digital signatures, or encrypt data to the respective identity holder. Before DPKI, everyone had to buy or obtain digital certificates from traditional certificate authorities (CA). As blockchain technology emerges, there is no need for a centralized CA anymore. In turn, DPKI is an enabler for many use-cases, namely verifiable credentials (VC). Many people today use the term verifiable credentials (VCs) to refer to digital credentials that come with such cryptographic proofs.

  2. Decentralized Storage: Decentralized storage is one of the core components of secure identity data management. In a decentralized framework, credentials are usually stored directly on the user’s device (e.g., smartphone, laptop) or securely held by private identity stores. Such private identity stores are referred to as identity hubs such as uPort’s TrustGraph or 3Box. When solely under the control of the user, identities are considered self-sovereign. This, in turn, means the user can both fully control access to the data without having to worry about access being revoked. Data under the user’s control makes the information more interoperable, allowing the user to employ data on multiple platforms, use the information for different purposes, and protect the user from being locked into one platform.

  3. Manageability and Control: In centralized identity systems, the entity providing the identity is generally responsible for the security of the identity data. In a decentralized identity framework, security becomes the responsibility of the user, who may decide to implement his or her own security measures or outsource the task to some service like a digital bank vault or a password-manager like an app. Additionally, blockchain-powered, decentralized identity solutions force hackers to attack individual data stores, which is costly and generally unprofitable.

Alastair Johnson, the CEO and founder of the Nuggets blockchain identity and payments company, said:

“A blockchain ID system adopts a user-centric approach, eliminating central points of failure by empowering individuals with self-sovereign possession over their own data.”

Johnson explained:

“To get the highest level of digital identity, you need to have transactions. You verify, you do biometrics, but the best thing you can get is to have the transaction proofs afterward. Now, when you put payment and identity together, you’ll get a transaction proof probably three or four times a day.” 


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Image: 10Duke

All human beings have an identity, as this identity comes in many forms, and as modern life has progressed, the ways in which people can identify have multiplied.

Digital identity is essential to the growth and viability of our digital economy, and fundamental to every organization, across every sector. It is how individuals control when, where, and with whom they share their credentials.

Thus, in the physical world, we take this sharing of credentials for granted, yet a secure, smart way to do this in the digital world.



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