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Decentralized Digital Identity Meaning

Nov 27, 2023 | Updated Nov 27, 2023
A decentralized digital identity is a type of identity management that enables individuals to control their own digital identities, without relying on a centralized authority. The concept involves the creation of unique and verifiable identities directly controlled by the holders.

What is a Decentralized Digital Identity?

A digital identity refers to the set of credentials an individual or organization uses online to represent who they are. Digital identities are derived from attributes such as usernames and passwords, name, date of birth, online search history, purchase history, and social security number. Digital IDs can be as simple as an email address or as complex as a digital certificate.

A decentralized digital identity, often interchangeably used with self-sovereign identity, is the concept of identifying and verifying individuals or entities without the need for a centralized authority. Blockchain technology facilitates the use of cryptographic keys that control identity and allow users to decide how and with whom their information is shared. The interactions are recorded on the blockchain network, creating an immutable history of the interactions with the digital identity.

Centralized Architecture Vs Decentralized Architecture

Centralized digital identities are associated with a myriad of problems, including certificate fraud, slow verification process, fake credentials, identity thefts, and data breaches. For instance, if biometric data is stored in a centralized location, it could be susceptible to a single point of failure. 

Decentralized identities present an opportunity to address the drawbacks of centralized architecture. With decentralized identities:

  • Individuals can decide what information is shared, how it is shared, and who can access it.
  • Users completely own and control their personal information.
  • It eliminates data and activity tracking.
  • The overall identity verification process is streamlined, reducing bureaucracy.
  • Credentials and certificates become fraud-proof.
  • It eliminates the single point of failure by distributing encrypted user data across nodes in a blockchain network.

What Makes up a Decentralized Identity System? 

A decentralized identity system is made up of three key components: blockchain, Verifiable Credentials (VCs), and decentralized identifiers (DIDs).

  • Blockchain: A blockchain is a decentralized and distributed ledger system that stores transactional data. It records user information in a permanent and tamper-proof manner, making it nearly impossible to manipulate the system.
  • Verifiable Credentials (VCs): VCs are digital and cryptographic versions of documents that identify and verify an individual or organization. They allow the verifier to easily identify the holder and trust the data without needing to trust the source. 
  • Decentralized identifiers (DIDs): A type of digital identifier that allows users or entities to create and manage their own unique identities, without requiring a third party. DIDs interlink users’ credentials using cryptography, without relying on personally identifiable information (PII).

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