What is Decentralised Digital Identity?

Think about this: everytime you sign up or create an account using your credentials on the internet, be it a social media service or a shopping site, your personal data is captured and stored on centralized databases controlled by these huge corporations. This data could include your date of birth, your address, and even your personal bank account details. 

This data is a sitting duck for hackers or scammers to steal and use to commit identity theft, financial fraud, and all sorts of malicious activities. Just recently, over 16 billion passwords connected to Apple, Meta, Google and other sites were leaked on the internet due to infostealer malware. This data can also be used by hackers as a strategy for strategic phishing attacks. 

Data breaches and scams are all too common in the internet of today, and there’s no real way to trust that the information you provide will be protected. You have no control over where your data goes once you give it away, and if a company is compromised, or in some instances if the company decides to sell your data to make money, so are you.

Enter Decentralized Digital Identity (DID) Systems. 

DIDs are globally unique identifiers, which simply means that each DID is mathematically designed to be distinct from every other DID ever created, anywhere in the world. Today, let’s explore DID systems and how they relate to the blockchain, why they are important, how they work and most importantly, what makes them so important for the internet of the near-future. 

What is Decentralized Identity in Blockchain?

In Web3, user sovereignty is key. 

The whole point of decentralization makes it so that no single entity, not a company nor government, controls your identity. Without the concept of DIDs in crypto, we risk repeating Web2’s problems of data exploitation and surveillance, where companies profit from tracking your digital footprint. 

Decentralization is important for security, trust, and privacy, and lays the foundation for a Web3 ecosystem where people, and not organizations, own and are in control of their digital identities.

Since Decentralized Digital Identity systems are all about putting you in control of your digital identity, the blockchain is the perfect backbone to build these systems. 

As you may know, a blockchain is a distributed ledger that stores data across a network of nodes, this is what makes it decentralized, i.e. no central authority controls it. Moreover, blockchains are immutable, which means that data on the blockchain cannot be tampered with once recorded. 

In contrast to current web2 identity systems, where a third party like a company controls the issuance and verification of your identity, decentralized identity linked to a blockchain allows you to prove your credentials through cryptographic proof, typically anchored to the particular blockchain network. 

Let’s dive a little further into how all this works.

Decentralized Identifiers (DID): Explained

A Decentralized Identifier (DID) is a type of identifier created and controlled by the individual, independent of any central authority. DID’s are unique to you, meaning you are the one who creates and controls it, completely independent of any company or government. It’s important to note that a DID itself doesn’t contain any personal information, but points to a ‘DID Document’. 

This document is stored on the blockchain and can be thought of as a public directory entry for your digital identifier. 

Think of your DID not as an ID card you’re given, but as a digital fingerprint you generate and own. You typically generate your DID within a specialized digital wallet app. This app uses cryptographic processes, often by creating a unique pair of digital keys (a public key and a private key), to automatically generate your distinct DID. Once generated, your DID, along with its public key, is then recorded on a decentralized network, like a blockchain, making it globally visible and verifiable. This process ensures that no central entity issues or can revoke your DID – you own it from its creation.

For example, a DID could look like did:ethr:0x1234567890abcdef…, representing an identifier linked to a blockchain address (in this case, Ethereum). 

Crucially, DIDs are not designed to contain personal data. Instead, they point to a DID Document, a set of metadata that includes the public keys and other verifiable information necessary for authentication. 

So, how exactly does anyone know your personal details like your name or your degree? 

This is where Verifiable Credentials (VCs) come in.

Verifiable Credentials

VCs are emerging solutions to verifying your credentials. They are essentially digital, cryptographically signed proofs of specific pieces of your information (e.g., your university issuing a VC for your degree, or a government issuing one for your age).

These VCs contain your actual personal data but are stored securely in your digital wallet: a secure, personal app on your phone or computer that privately holds your Verifiable Credentials. 

This data is under your sole control, not on the public blockchain or in the DID Document. Your digital wallet holds these VCs, and unlike a centralized system, you completely control the keys and thus the data within them. This also means your VCs are stored on your device, not in a central company’s database, so there’s no single target for hackers to steal everyone’s information.

Crucially, you also choose precisely what specific data from a VC to share, maintaining your privacy and control at all times.

This design ensures that the user has control over the identity’s integrity, and because it is cryptographically secured, it cannot be easily tampered with. The combined use of DIDs and VCs truly allows decentralized identity systems to function without requiring trust in any one centralized authority, such as a government or corporation.

Centralized vs Decentralized Identity

How Does Decentralized Identity Work?

The decentralized identity system typically relies on three key actors: issuers, holders, and verifiers.

Issuer:

In a decentralized identity system, an issuer creates and issues credentials, such as a university or bank verifying your identity, age, or education. However, unlike traditional systems, they don’t store or control your personal data. Instead, they issue verifiable credentials using cryptography, allowing you to control and share your information securely. The issuer only confirms the validity of the credential, not the underlying data, ensuring your identity remains private and under your control.

Holder: 

The holder is the individual or entity to whom the credential is issued. In a decentralized identity system, the holder controls their credentials, typically stored in a digital wallet. More importantly, the holder is the only one with access to the cryptographic keys needed to prove ownership of those credentials.

Verifier: 

The verifier is any entity that needs to validate the authenticity of a credential. For instance, if you are applying for a job, a potential employer might verify your degree or work experience by checking the digital credential issued by your university or previous employer. 

So, the verifier does not need to contact the issuer to check if the credential is legitimate. Instead, they can verify the credential using the issuer’s public keys and check the data directly, often using blockchain-based records.

This system eliminates the need for a centralized authority to manage personal data. Instead, credentials are cryptographically secured and only shared when necessary, ensuring privacy. It also makes it easier for users to share parts of their identity selectively, avoiding over-sharing of personal information.

Key Benefits of Blockchain in Decentralized Identity

Blockchain technology serves as a powerful foundation for Decentralized Digital Identity systems, offering several transformative benefits:

• Enhanced Security and Integrity: Once your identity information (like your DID or the existence of a Verifiable Credential) is recorded on the blockchain, it’s virtually impossible to alter or erase. This immutability, combined with strong cryptography, makes your digital identity incredibly secure and tamper-proof, drastically reducing risks like identity fraud.
• Trustless Verification: Blockchain allows anyone to cryptographically verify the authenticity of a DID or a Verifiable Credential directly on the network, without needing to trust or go through a central company or government. This builds a system of inherent trust.
• User Sovereignty & Censorship Resistance: Because blockchain doesn’t rely on a single central system, no one entity can arbitrarily control, revoke, or censor your digital identity. You truly own and control your DID, giving you unprecedented autonomy.
• Global Scalability & Interoperability: Designed for distributed networks, blockchain can support millions, even billions, of identities worldwide without slowing down. Furthermore, by building on open blockchain standards, DIDs and VCs can easily work across different platforms and services, fostering broad adoption.

Challenges and Considerations

Despite its significant promise, the widespread adoption of decentralized identity systems faces several key challenges that need to be addressed:

• Establishing Initial Trust: While decentralized identity aims to reduce reliance on central authorities for verification, you still need to initially trust the entity that issues your Verifiable Credentials. For instance, a university might issue a digital degree; but how do you know that university itself is legitimate, or that the credential was issued correctly? This initial trust in the issuer remains a critical consideration for DID systems.
• Achieving Seamless Interoperability: For DIDs to be truly useful, they need to work flawlessly across different platforms, applications, and even various blockchain networks. Developing universal standards and ensuring smooth communication between these diverse systems is crucial for widespread adoption.
• User Experience and Education: The concepts behind DIDs and VCs can be complex for the average user. Solutions need to be as simple and intuitive to use as traditional login methods, and users will require education on how to manage their new level of digital sovereignty.

Decentralized Identity Blockchain and Crypto Projects

Many blockchain projects are already exploring decentralized identity solutions. Each takes a slightly different approach, but all share the goal of empowering users to control their own identities and data. Below are a few key players:

Worldcoin (World ID)

Worldcoin is a leading project tackling decentralized identity through proof-of-personhood. It uses a biometric device called the Orb to scan a user’s iris, then generates a unique World ID linked to their digital wallet and sends them WLD tokens as incentives. 

This ensures one-person-one-identity across Web3 platforms, preventing Sybil attacks in dApps. Despite the efforts, the project raises many privacy and surveillance concerns.

Proof of Ink (Unique Tattoo Identity)

Proof of Ink tries to tie identity to a cryptographically-generated tattoo, serving as a permanent, hard-to-replicate proof of personhood. 

This unique approach guarantees one-human-one-identity verification through a physical marker linked to the user’s cryptographic keys. Like other DID projects, it aims to offer secure, private, and verifiable credentials across platforms.

Humanity Protocol

Humanity Protocol uses palm vein biometrics to verify human uniqueness and combat Sybil attacks. Launched in 2024, and designed for Web3 interoperability, it employs zero-knowledge proofs for privacy and aims for full self-sovereign, decentralized identity.

DID & The Post Web Theory

In the Post Web vision articulated by Jamie Burke and Outlier Ventures, decentralized identity (DID) goes far beyond personal user authentication. 

The Post Web theory is set in a world where the agentic internet (i.e. an internet where autonomous AI agents act on behalf of users across dApps, DAOs, and emerging economic systems) has become an everyday part of human life.

In this scenario, its more than crucial to prove your identity as a human being, but since there can infinitely be more bots than humans, AI agents will also require to prove their identities online. 

AI Agents Will Also Require DID

instead of being limited to just logging in, DIDs and verifiable credentials will become an active, programmable element of all digital interactions. 

This means DIDs will enable agents to carry out transactions, make governance decisions (in the DAO’s of the future), and manage assets, all with clear, auditable records that prove the source and integrity of the actions.

According to the theory, as decentralized governance models evolve, humans will delegate voting power and decision-making to AI agents. DIDs in this case will help make sure there’s transparent and safe records of all their actions. This prevents centralization of power and misuse of any data.

The Thin Web

Finally, The Post Web theory introduces the concept of the Thin Web, a hyper-contextual, adaptive layer of the internet where humans will engage with agents and decentralized services through next-gen interfaces. 

In simple terms, DIDs will allow users to easily manage their identity and data across different platforms, giving them control over what information they share and with whom. Rather than being an extra feature, DIDs will make it possible for users to interact with decentralized systems in a more autonomous way.

Conclusion

The shift toward decentralized identity represents a significant step forward in the Web3 ecosystem, aligning with the broader principles of privacy, security, and user sovereignty. By providing individuals with control over their own identity data, decentralized identity systems offer a more secure and transparent way of verifying identity online. 

However, the challenges of scalability, interoperability, and trust remain, and a lot of work remains to be done to ensure these systems are widely adopted.

Moving forward, decentralized identity will likely become a cornerstone of the Web3 ecosystem, enabling secure, privacy-respecting interactions across the digital world.

Frequently Asked Questions about Decentralised Digital Identity

What is decentralized proof of identity?

Decentralized proof of identity means proving who you are without relying on a central authority or database. Instead, you control your identity and credentials, often using blockchain technology to securely verify your information.

What are the four forms of digital identity?

The four forms of digital identity are self-sovereign identity (SSI), federated identity, centralized identity, and biometric identity. Each type varies in how much control the user has and how identity information is stored and verified.