Today, almost every online service wants to know who you are. Social networks ask for a phone number, banks request passport details, marketplaces require an address, and government platforms collect entire digital profiles. As a result, information about an individual ends up scattered across dozens of databases over which they have virtually no control.
As long as everything works properly, such a system may seem convenient. However, if just one major database falls into the hands of malicious actors, the login credentials, documents, addresses, phone numbers, and payment details of millions of people may be exposed along with it.
One alternative to the conventional model is decentralized identity, or DID. Its central idea is simple: a digital identity should belong to the individual, not to the platform on which they are registered.
What is DID (decentralized identity)?
Decentralized identity is a way to verify information about yourself without constantly providing third-party services with a complete set of personal data.
In a conventional system, a user creates a separate account on each website. The company stores their data, establishes access rules, and may block the account when necessary. In practice, the individual rents their digital identity from the platform.
The DID (decentralized identity) model works differently. The user receives a unique digital identifier and stores the documents associated with it in a special application known as an identity wallet. The user decides who may view their diploma, age, license, or proof of identity.
At the same time, a service does not necessarily need to receive a copy of the user’s passport. Sometimes it only needs to verify one specific fact, such as whether the person is over the age of 18 or holds a valid driving license.
The term DID (decentralized identity) is used in two meanings. It refers both to the concept of decentralized identity itself and to a unique decentralized identifier — a string of characters associated with a person, organization, device, or digital object.
What decentralized identity consists of
DID (decentralized identity) is generally based on three elements: an identifier, verifiable credentials, and a digital wallet.
Decentralized identifier
A DID (decentralized identifier) can be compared to a digital passport number, but without being tied to a single government or corporate database. It may belong to an individual, company, server, vehicle, industrial sensor, or software agent.
The identifier is linked to cryptographic keys. The private key remains with the owner and is used to prove control over the DID (decentralized identifier). The public key allows other participants to verify the digital signature.
Personal information does not necessarily have to be recorded on a blockchain. A distributed network may store only the technical data required to verify the identifier. A passport, diploma, or license remains in the user’s wallet or in the issuer’s secure system.
Verifiable credentials
Verifiable Credentials are digital documents whose authenticity can be verified using cryptography.
Such a credential may be a diploma, driving license, professional license, qualification certificate, or proof of age.
Three parties participate in this model. The issuer creates the document, the holder stores it, and the verifier confirms that the document is authentic.
Imagine that a university has issued a digital diploma to a graduate. The document is stored in the graduate’s wallet, and when they apply for a job, the employer verifies the educational institution’s signature. There is no need to call the university administration or request a paper copy.
Like conventional documents, digital credentials may have an expiration date. The issuer may revoke them if a license expires, the holder’s status changes, or the document was issued by mistake.
Identity wallet
An identity wallet is an application in which a user stores their DID (decentralized identifier), keys, and digital documents.
It resembles a cryptocurrency wallet, except that instead of coins, it contains proof of identity, age, education, and professional status.
The main difference from the centralized model lies in access control. Instead of a service deciding what information to collect, the user chooses exactly what to disclose.
For example, when renting a car, a person can confirm that they hold a valid driving license without providing a copy of the document containing all their personal information. When purchasing an age-restricted product, they can prove that they are an adult without disclosing their date of birth.
What zero-knowledge proofs have to do with it
One of the most interesting technologies associated with DID (decentralized identity) is the Zero-Knowledge Proof.
It allows a person to prove a particular fact without disclosing the underlying data. A user may confirm that they are over the age of 18 without revealing their exact age. Alternatively, they may demonstrate that they have sufficient funds for a transaction without disclosing their account balance or transaction history.
This is particularly important for digital identity. Most services collect significantly more information than is required for a specific verification. A Zero-Knowledge Proof makes it possible to replace the “show everything” principle with the “prove only what is necessary” principle.
What problems DID solves
The main problem with centralized identification is the lack of real control over personal data. After registering, users rarely understand where their information is stored, who has access to it, and how long it will be used.
The decentralized model makes it possible to reduce the number of document copies scattered across different services. Instead of submitting a passport yet again, a person provides cryptographically verifiable proof.
This may also be useful for meeting KYC (user identity verification) and AML (anti-money laundering measures) requirements.
KYC (Know Your Customer) is the process of identifying and verifying a client before providing financial services. A company establishes the user’s identity, verifies the authenticity of their documents, and, in some cases, requests information about their place of residence, occupation, source of funds, and the purpose of their transactions.
AML (Anti-Money Laundering) is a set of measures aimed at preventing the laundering of criminal proceeds, terrorist financing, and other illegal financial activities. Such procedures include verifying customers and the origin of their funds, analyzing transactions, identifying suspicious activity, screening against sanctions and restricted-party lists, and reporting information to authorized bodies in cases required by law.
Advantages of decentralized identity
The main advantage of DID (decentralized identity) is control. Users decide for themselves what information to disclose and to whom.
The second advantage is data minimization. Instead of receiving a complete copy of a document, a service receives only the required confirmation.
The third advantage is portability. A single digital diploma, certificate, or identity verification result could potentially be used across different platforms.
In addition, DID (decentralized identity) reduces dependence on large centralized databases. If a company does not need to store millions of passport copies, the potential scale of a data breach becomes smaller.
Cryptographic verification also simplifies document processing. A service can quickly determine who issued a document, whether it has been altered, and whether it remains valid.
Disadvantages and risks
Decentralization does not mean complete security. It merely transfers part of the responsibility from companies to users.
The main risk is associated with keys. If a person loses access to their wallet, restoring their digital identity may be difficult. If the key falls into the hands of a malicious actor, that person may attempt to impersonate the owner.
DID systems (decentralized identity systems) therefore require reliable recovery mechanisms, including backups, trusted contacts, hardware keys, and multifactor authentication.
Usability is another issue. Most users are accustomed to clicking the “Forgot password?” button and contacting customer support. Managing keys independently requires a higher level of digital literacy.
Another barrier is limited adoption. Having a DID (decentralized identifier) does not mean that every bank, marketplace, or government service will accept it. Widespread use requires common standards and trust between platforms.
A separate risk arises from the use of biometrics. A password can be replaced after a leak, but a face, fingerprint, or iris cannot. This is why biometric DID projects (decentralized identity projects) raise concerns and controversy regarding privacy and security.
DID in blockchain projects
Elements of decentralized identity are already being used in blockchain systems.
Ethereum Name Service allows users to replace a long wallet address with an easy-to-read name in the .eth domain. Such a name may serve as part of a user’s digital profile.
The Worldcoin project is developing the system, which is intended to confirm that a unique human being controls an account. Verification is performed using the Orb device, which scans the iris.
Where the technology can be used
The use of DID (decentralized identity) is not limited to cryptocurrencies. Decentralized identifiers may be used in banking, government services, education, healthcare, insurance, and e-commerce.
A digital diploma can be presented to an employer, a driving license to a car rental service, a professional license to a client, and proof of age to an online store.
Organizations may use DID (decentralized identity) for employees, equipment, and software systems. For example, one server may verify its authenticity to another server without human involvement.