What Is Decentralised Identity?

  • Crypto Guru
    April 3, 2023, 11:24

Identity refers to an individual’s sense of self, which is determined by unique characteristics. Identity can also be applied to non-human entities like organisations and authorities. Traditional identity management systems are based on centralised intermediaries that issue and manage an individual’s identifiers and attestations.

Decentralised identity systems created using public blockchain technology allow individuals to have control over their identity-related information. The new solutions eliminate reliance on central authorities, such as service providers or governments. Let’s learn more about it with Grapherex.

What Are Traditional Identifiers and Attestations?

Identifiers are the pieces of information that define who you are. They act as pointers to particular identities: these may include your name, national security number or tax ID, phone number, and date of birth. Identifiers can even include your digital identification credentials like email addresses, usernames, and avatars. All traditional identifiers are controlled by centralised entities, and if you want to change them, you need permission from the relevant authority.

Attestations are claims made by one entity about another. For example, your driving licence attests that you are allowed to drive a vehicle. Attestations contain identifiers that reference a particular identity. So, your driving licence has identifiers like your name, date of birth, and address, but it is also an attestation that you have a legal right to drive.

What Alternative to a Traditional Identity Does Web3 Offer?

The decentralised method of storing data is a real game changer. Unlike centralised methods and identifiers discussed above, decentralised systems are often hosted on file-sharing platforms such as the InterPlanetary File System. Such open-source protocols store data on decentralised networks that are mostly resistant to shutdowns and give users ownership over their personal details.

Web3 – the concept of a new, third-generation Internet, decentralised and powered by blockchain and tokenomics – would be the perfect place to store data in a decentralised manner and manage and share it securely. Let’s see how this can be brought to reality.

Decentralised Identifiers

Decentralised identifiers called DIDs are not issued or controlled by any central entity. For example, an account you open on the Ethereum blockchain is a DID, as you are allowed to create or delete as many accounts as you want and edit them on your own. You won’t need any permission to do so.

Decentralised identifiers are stored on distributed ledgers or peer-to-peer networks. This innovative storage approach makes DIDs globally unique, easily resolvable, and highly available. Moreover, the use of cryptography makes them fully verifiable and secure. A decentralised identifier can belong to a person, a company, or a government institution.

Here are the most common decentralised identity use cases:

Universal Logins: Decentralised identity offers an alternative to password-based logins. For example, a person’s attestations granting them access to online communities are turned into NFTs and can be stored in an Ethereum wallet. With the Sign-In with Ethereum feature, servers confirm a user’s account and retrieve the required attestation from their address. So, there will be no need for users to remember complex passwords.

KYC Authentication: DIDs offer an alternative to the Know-Your-Customer (KYC) verification process; now, service providers can use Verifiable Credentials. During KYC, individuals must provide sensitive personal information (a driving licence, passport, etc.) DIDs allow companies to skip these KYC processes. Additionally, the decentralised identity approach reduces the possibility to fake documents and lowers the cost of ID management.

Voting and Online Communities: Online voting systems are vulnerable to manipulation, particularly when bad actors create false identities to cast votes. Using on-chain attestations improves the integrity of online voting. The same logic applies to creating online communities that are free of fake accounts: participants can use an on-chain identity system like the Ethereum Name Service.

Anti-Sybil Protection: Sybil attacks happen when an individual creates multiple fake identities to increase their influence and gain control over a system. This problem is especially serious when we think about grant-giving applications. Decentralised identities can prevent Sybil attacks by asking each participant to prove that they are a real human through on-chain attestations.

What Are Decentralised Identifiers Based on?

There is an underlying technology that makes decentralised identifiers valid and efficient: Public Key Infrastructure and decentralised data storage.

Public Key Infrastructure (PKI): A tool for strengthening information security. The infrastructure helps to generate both a public and private key for the object. The public key identifies the account owner, while the private key can sign and decrypt messages for the account in question. Public key cryptography is used in blockchains to authenticate user credentials and confirm ownership of digital assets.

Decentralised Datastores: Blockchains are decentralised and trustworthy repositories for data. They help avoid storing identifiers in centralised registries. Verification of DIDs can be done by checking the related public key on the blockchain, which eliminates the need for third-party authentication.

Other Types of Decentralised ID Solutions

Decentralised identity solutions are developing along with the rise of DeFi (decentralised finance) and the need for secure interaction with Web3 services.

  • Non-custodial crypto wallets help users make transactions without relying on a centralised institution;
  • Systems like Ethereum Name Service and Unstoppable Domains offer decentralised identifiers for creating unique domain names;
  • Soulbound tokens are a way to represent the identity and achievements of the token owner in Web3;
  • An Ethereum-based Proof of Humanity verification system allows users to create profiles and vouch for other people they know.

As our self-expression continues to grow online, there is tremendous potential for DIDs to become even more innovative. Already today, NFTs are used as visual identifiers, while metaverse platforms offer full-body avatars, and we should be ready to welcome further changes.

Key Takeaways

Decentralised identity:

  • increases individual control of identifying information;
  • eliminates reliance on centralised authorities and third parties;
  • creates a trustless and privacy-protecting method for verifying and managing identity;
  • harnesses blockchain technology;
  • makes identity data portable;
  • works well with emerging zero-knowledge technologies (during voting);
  • enables anti-Sybil mechanisms.

Overall, decentralised identity is a new powerful way to keep user data safe, private, and encrypted.