What Is Decentralized Identity And Why Should You Care?

Today, our lives are increasingly connected to the apps and services we use.

An eCommerce store to shop online, a social network to interact with, an email system for work communications—the list goes on.

Using these services requires proving our identity and authorizations. While we’re used to giving out low-level identity information, such as names and email addresses, other services may require a high-level ID like a Driver’s License.

However, current identity management systems have several flaws.

Not only are they centralized, with service providers storing user data, but they are also risky since malicious actors can breach servers and steal your information.

Decentralized identity improves on existing identity management standards and gives users greater control over personal data.

In a decentralized identity framework, individuals store their identity information and choose what to share with third parties.

Because decentralized identifiers are stored on distributed ledgers and blockchains, they are tamper-proof, secure, and instantly verifiable by anyone.

This reduces the need to store identity information in servers and makes it easier for users to access services seamlessly.

This article explains what decentralized identity means in detail, how it works, and why it matters. We’ll cover key concepts like decentralized identifiers and decentralized authentication and explore existing decentralized identity projects.

Let’s dive in!

What Does Decentralized Identity Mean?

Decentralized identity is a new form of identity and access management (IAM) that de-emphasizes centralized storage of user information. Decentralized identity bolsters individuals’ control of their data—hence it is also known as self-sovereign identity (SSI).

In plain English, a decentralized identity allows you to own your identity. So how does it work in practice?

Your identity is a collection of attributes and credentials that uniquely describe you. Some identifiers may be self-owned, like your name, DOB, email address, username.

And others may be issued by institutions; for example, a university degree, Driver’s License, or passport number.

In decentralized identity management, users store credentials and personal information in a “digital wallet.” Just like a real-life wallet, a digital wallet holds your identifiers, such as your license or ID card.

Decentralized identity distributes the storage of identity information across a system of distributed computers, like a distributed ledger or blockchain.

The use of distributed ledgers to hold identity elements renders them immune to alteration and theft. So, even though your identity information is recorded in electronic format, it cannot be altered, stolen, or deleted.

The transparency inherent in distributed ledgers makes identity information instantly verifiable without necessarily relying on the issuer.

Here’s a brief illustration of how decentralized identity works:

An organization (the Department of Motor Vehicles) wants to issue you (the user) a credential (Driver’s License). You send your wallet address, which is a specific location on the distributed ledger or blockchain for storing data. The DMV then sends the credential to your digital wallet, signing the transaction with its private key.

Now, you can share this credential anytime you need to establish your identity—for example, while completing a loan application. Using a trusted utility, the other party can check the validity of your credentials. In this case, the utility checks the public keys and transaction details to confirm the issuing organization and date of issuance.

Note that the information itself is not stored on the blockchain. Instead, the blockchain generates an immutable record of the transaction that saw the information pass from the issuing organization to you. This “digital fingerprint” (also called a hash) is unique to each credential and can reliably prove your ownership.

The various…