Blockchain Use Cases: Digital Identity

Since the launch of Bitcoin, the use cases associated with blockchain technology are still expanding. The technological innovation that has come with this nascent technology has surpassed traditional margins. Though traditional processes haven’t changed over the years, this technology continues to grow. While digital life and services are online, identity processes continue to rely on paper.

Personal data breaches, database hacks, and personal data leaks have plagued digital identity management over the years. In 2019, hackers breached over 7.9 billion pieces of consumer data.

Blockchain systems offer transformative approaches to identity management. The tamper-proof nature of the technology in the form of distributed ledger technology (DLT) and non-fungible tokens (NFTs) is a privacy-respecting solution to the digital identity management crisis.

Why Digital Identity Protection Is Important

Over the last few decades, identity management has become a major concern for governments and the business environment. Many companies are worried about enterprise solutions where identities are secured, stored, verified, and how authorized participants endorse identity documents.

Digital identity isn’t only about your social media accounts, emails, physical address, etc. They are a part of it, but it encompasses every piece of information about your personal data available online. This includes, but is not limited to, shopping preferences, bank account information, images, and sites you visit. Basically, everything you do online.

On a personal level, everyone considers their privacy important. The security of life and property is tied to the protection of personal data. In the business environment, digital identity is crucial for preventing money laundering and other fraudulent activities. For governments, citizen data is significant for facilitating a unified data structure, creating identification documents, and ensuring improvements to citizen welfare measures.

Identity is an integral part of a society’s economy. Individuals need a way to identify themselves in their day-to-day interactions. Identity creates a valid collection of claims about a person, place, or thing. Individuals have to have national ID cards, a social security number (SSN), driving licenses, and voter’s cards to identify themselves, open bank accounts, and vote in elections.

Worldwide, 1.1 billion people lack a means of claiming ownership of their identity. As a result, one-seventh of the world’s population is vulnerable, unable to participate in political processes, own property, open a bank account, or obtain employment.

Issues With Digital Identity Management

There are several issues with the current approach to identity management. They include:

Single Point Of Failure

One of the most common issues with digital identity is the centralized nature of data storage. Current databases run on legacy software and feature multiple single points of failure.

Centralized systems containing the personal data of millions of users are susceptible to large-scale breaches, leaving customers appealing to hackers. In 2018, 97% of all breaches targeted information, causing 2.8 billion consumer data records to be exposed at an estimated cost of more than $654 billion.

Attribute Drift and Inconsistencies

While digital identities are a unique set of claims made by a digital subject about itself, they are vulnerable to changes and reassignments.

Identifiers such as phone numbers can be reassigned to different identities at the same time. This duplication of identities burdens users and businesses with the need to ensure that identifiers sync across many databases.

Identity Theft and Fraud

The identity landscape is fragmented. Consumers juggle multiple identities at the same time across different platforms. For example, social media usernames are different from one to another.

Since there’s no standardized way to determine who is what on different platforms, consumers can create fake identities. Hence, societal issues like the spread of fake news by anonymous accounts continue to be a big threat to society.

Barriers to Identity

Digital identity structures are inaccessible to many. Many people in remote areas don’t have access to social and financial institutions due to complicated paperwork processes and limited access.

Blockchain: The Solution

Over the last two decades, technological advancements have created methods of protecting digital identities. Robotic process automation and machine learning have been viable candidates, though their advantages are diminished because they are centralized identity management systems.

Decentralized identity management is cryptographically secure all the way through the blockchain. This prevents the stored data from being altered or manipulated.

The concept of decentralization provides effective answers to the problems of traditional centralized systems. NFTs have progressed from representing real-world objects and intellectual assets to being used by governments to identify their citizens.

The immutability and traceability of data on the blockchain help ensure its permanence, guaranteeing integrity and efficiency. Also, the security the technology offers allows for the storage of large amounts of data at reduced costs.

Blockchain And Identity Management

Decentralized identity management is cryptographically secure all the way through the blockchain. This prevents the stored data from being altered or manipulated.

The rise of self-sovereign identity (SSI) points to the growth of digital identity that is controlled by the user.

SSI is built on the blockchain’s secure distributed ledger capabilities. It puts the users in charge of their own identities, so they have full control over them. SSI is designed to be trustless, eliminating the need for a third-party provider.

The system uses decentralized identifiers (DIDs) to enable verifiable and decentralized digital identities. DIDs are cryptographic, verifiable credentials that are used to identify users.

Decentralized Identifier (DID)

A decentralized identifier (DID) is a pseudo-anonymous way to identify someone, a business, an item, etc. Private keys are used to protect each DID. Only the owner of the private key is able to exercise ownership or control over their identity.

The amount to which a person can be monitored across their various activities in life is limited by the fact that one individual can have numerous DIDs. A person might, for instance, have one DID connect to a gaming site and a completely different DID connect to their credit reporting platform.

A cryptographic key pair is made by using the DID, signing it with the certificate authority, and then publishing it as an attestation on the blockchain.

You must deploy code (written in Solidity) that has certain guidelines for how the attestation should be constructed in order to add attestations to a blockchain. If new attestations are required, this function is used to generate them.

Blockchain Use Cases

Blockchain can be utilized in many ways when it comes to identity management. Here are some top use cases:

Asset management

The concept of distributed ledger technology provides a system for managing assets and transactions through a secure, transparent, and peer-to-peer mechanism. It eliminates the need for third parties, such as banks, to manage assets.

Hence, individuals can prove their identity without using any third-party identity management systems. With this, they can easily manage their assets and make transactions with ease.

Blockchain makes it possible for individuals to own and transact assets without the need for a third party for identity verification.

Payments

Since Bitcoin gained popularity, several other digital currencies have popped up. Cryptocurrencies rely on blockchain technology to make transfers and transaction processing more efficient by spreading work over a network rather than on a centralized authority.

A digital identity tied to payments will make it easier to verify parties in a transaction instantly while securing their personal data.

Also, blockchain identity verification for P2P transactions is faster and more efficient than today’s legacy systems. With a digital wallet and an internet connection, anyone can transact online.

Monetization of Data

As the popularity of self-sovereign identity (SSI) grows, questions surrounding who owns and should profit from user-generated data come under the spotlight.

The monetization of data involves using personal data to gain economic benefits. Personal data continues to increase in value, but users are locked out from enjoying the economic benefits.

With SSI, the attribution of user data to their DID will allow users to choose whether to rent their data to algorithms or sell it to advertisers. Users can also choose to hide their data from corporations and the government.

Education

Using blockchain identity management, colleges and universities will be able to protect and secure their students’ information.

The system will allow schools to create verified student ID cards, secure test, and exam scores, and enhance information access. University staff can also tokenize their credentials on the blockchain as proof of their academic qualifications and achievements.

Data portability

There are laws that allow users to have their personal data transmitted from one controller to another. For example, the Article 20 of the European Union General Data Protection Regulation (EU GDPR) is meant to help protect users and help them do as they wish with their data. It also allows for ease of verification as data transmitted can be used on different platforms without having to create a new one.

This legal option may improve user experience by reducing the need for users to reconfirm their identification across numerous services and platforms. It is simple to migrate identities that were anchored on one target system to another using DIDs and verifiable credentials. By streamlining the registration process and lowering user friction, data portability promotes greater user adoption. Reusable credentials made possible by DID data portability allow users to swiftly re-verify their identities while still adhering to regulatory Know Your Customer (KYC) standards.

Pros and Cons Of Blockchain Digital Identity Management

First, self-sovereignty is the most important advantage of blockchain-based digital identity. It empowers users with the ability to do as they please with their data and removes that power from corporations and the government.

Second, the very nature of blockchain creates an immutable and secure technology that boasts of being better than traditional systems. Blockchain offers consumers a transparent and secure method for storing their data without hassle.

Third, with the elimination of third parties, blockchain offers a truly trustless, traceable, and verifiable method for companies to conduct KYC and transactions. Since IDs cannot be duplicated on the blockchain, each user can be easily traced on the distributed ledger.

A major disadvantage of blockchain identity management is within the framework of lack of precedent and acceptable risk. Uncertainty and liability in the nascent technology ecosystem are risky for many. There’s also an absence of precedent regarding law and processes, which may make first movers apprehensive of the blockchain.

Another concern is the possibility of a 51% attack. 51% attacks are more likely in small blockchains and have the ability to reorganize the blockchains. Doing this can alter the records on the blockchain.

However, this problem is possible on public blockchains, where anyone can become a validator. On private blockchains, the likelihood of such an attack is lessened.

Conclusion

As the world continues to go digital, digital identity management is more important than ever. The social and economic identities of people can help them gain access to a better life and social standing. Existing systems increasingly show the need for reforms as their barrier to entry is steep and their security is less effective.

Blockchain helps to create decentralized, trustless, and easily verifiable storage of data. It incorporates different digital identities into one credential that can be under the user’s control and ownership.

In the years ahead, blockchain-based identity management will be an interesting area of exploration with more solutions under its sleeves.