Decentralized identity is an emerging Web3 concept based on a trust framework for identity management. Such decentralized identity management includes an approach to identity and access administration that allows people to generate, manage and control their personally identifiable information (PII) without a centralized third party like a registry, identity provider or certification authority.

The importance of decentralized identity

A verifiable proof of existence is often needed for citizens to access essential services like healthcare, banking and education. Unfortunately, according to Worldbank data, 1 billion people on our planet still do not have an official proof of identity. A considerable part of the population is in a precarious position, unable to vote, open a bank account, own property or find a job. The inability to obtain identification documents limits people’s freedom.

What’s more, traditional centralized identification systems are insecure, fragmented and exclusionary. Centralized identity databases are at risk as they often become prime targets for hackers. From time to time, we hear about hacks and attacks on centralized identity solutions in which thousands and millions of customer records are being stolen from major retailers.

The ownership issues remain as well. Users who have traditional forms of digital identity still don’t have complete ownership and control over them and are usually unaware of the value their data generates. In a centralized scenario, PII is stored and managed by others. Thus, it becomes more challenging, if not impossible, for users to claim ownership of their identities.

Decentralized digital identity addresses these issues by providing a way for digital identity to be used across multiple participating platforms without sacrificing security and the user’s experience. In a decentralized identity framework, users need only an internet connection and a device to access it.

Furthermore, in decentralized identity systems, distributed ledger technologies and blockchain, in particular, validate the existence of a legitimate identity. By providing a consistent, interoperable and tamper-proof architecture, blockchains enable the secure management and storage of PII, with significaant benefits for organizations, users, developers and Internet of Things (IoT) management systems.

What is a sovereign identity?

Self-sovereign identity is a concept that refers to the use of distributed databases to manage PII.

The notion of self-sovereign identity (SSI) is core to the idea of decentralized identity. Instead of having a set of identities across multiple platforms or a single identity managed by a third party, SII users have digital wallets in which various credentials are stored and accessible through reliable applications.

Experts distinguish three main components known as the three pillars of SSI: blockchain, verifiable credentials (VCs) and decentralized identifiers (DIDs).

Identity decentralization – perspectives and threats

Because users have complete control and ownership of their identities and credentials, they can decide which information they want to reveal and can prove their claims without depending on any other party.

Security reduces attack surfaces by storing PII. Blockchain is an encrypted decentralized storage system that is safe, flexible and impenetrable by design, reducing the risk of an attacker gaining unauthorized access to steal or monetize user data.

Decentralized identity management also helps organizations reduce security risks. Based on how organizations collect, process and store users’ data, they are subject to regulations. Organizations face sanctions and fines even for unintentional rule violations or data breaches. With decentralized identity management, they have an opportunity to collect and store less identity data, simplifying their compliance responsibilities and reducing the risks of cyberattacks and information being misused.

Privacy enables entities to use the principle of least privilege (PoLP) to designate minimal or selective access for identity credentials. PoLP is a term correlated with information security. It states that any person, gadget or process should only have the minimal rights necessary to execute the considered task.

And last but not least, decentralized identity technology gives users the advantage of easily creating and managing their identities with user-friendly neoteric decentralized identity apps and platforms.

As for flaws and drawbacks, there are a bunch of them, primarily — adoption. Governments and organizations are still attempting to figure out how to deploy the decentralized identity technology at scale, while most non-tech users have not even heard of this phenomenon.

Overcoming the legacy systems and regulations and creating interoperable global standards and governance are also important issues. While a secondary issue, identity data fragility, which refers to duplication, confusion, and inaccuracy in identity management, remains.