Decentralized Identity

What is decentralized identity?

Decentralized identity is based around the idea that organizations should be able to manage user identities without requiring users to give up personal information.  Decentralized identity solutions are a key part of the identity management and verification process. These solutions streamline identity operations by reducing user identity fraud, quickly onboarding users, limiting costs associated with provisioning and issuing digital certificates, and allowing end users a privacy-preserving identity verification method. They also minimize security risks associated with centrally storing identity information, including regulated data such as personally identifiable information (PII). 

Companies utilize decentralized identity software to validate or manage the identities of workers, customers, other end users, and even devices such as internet of things (IoT) devices. Unlike centralized identity management software, where a company keeps PII about the user, such as name, email address, passwords, and other identifiers. Decentralized identity management allows the end user to maintain direct control over their identity data and easily share or revoke access to that data by the company validating the identity. Decentralized identity solutions are often built on distributed ledger technology (DLT) systems, such as blockchain software, which offers validation, improved traceability, and documentation over traditional identity management solutions. 

Types of PII

There is a number of personally identifiable information that can be used to understand an individual’s identity. A few of the common ones include:

• Name
• Birthday
• Address
• Social Security number
• Credit card number 

Benefits of using decentralized Identity

There are several key benefits that can be derived from decentralized identity. 

• Privacy: Arguably, the most important benefit of decentralized identity is addressing privacy concerns. Identity owners have complete control over their personal information and data. This empowers users to make privacy decisions as they see fit. 
• Compliance: Related to privacy, another key concern addressed by decentralized identity is compliance. Organizations avoid potential litigation and punishment for mishandling user data by not collecting personal information from unwilling users. 
• Consistency: After using decentralized identity systems, transactions and interactions are finalized and stored, often on the blockchain. This is important, as it ensures that important information is recorded in a secure, immutable environment. 

Impacts of using decentralized Identity

By incorporating decentralized identity practices, some key processes may occur. These include:

• Organizational responsibility: By utilizing decentralized identity, organizations bear the responsibility of keeping user data safe. Unlike centralized identity, which incorporates third-party sources, organizations are charged with maintaining and managing user data themselves. This includes everything from data accessibility to potential cybersecurity threats. 
• Visibility: By opting for decentralized identity, users have the right to not provide personally identifiable information. While this works for users, it does create challenges for the organization involved. This data will not be accessible to companies, which means they may be sacrificing valuable insight into the individuals using their systems. 

Basic elements of decentralized identity

The format for decentralized identity can vary, but it typically includes the following elements:

• Blockchain: Blockchain, or distributed ledger systems, are often crucial for decentralized identity systems. Blockchain ensures that transactions are immutable, meaning they cannot be altered. This ensures the level of security and compliance, which is often the key driver of decentralized identity, is met. 
• Decentralized identifier: Decentralized identifier is a unique identifier utilized in place of more private identification. This identifier is utilized for verification instead of personally identifiable information. 

Decentralized identity best practices

To truly practice decentralized identity principles, users can follow these best practices:

• Clear messaging: Organizations should make it abundantly clear to users exactly what data they are giving and what information is truly needed from users. This messaging is essential, as it ensures users only give information they feel comfortable communicating.
• Distributed ledger systems: Decentralized identity practices are best conducted over distributed ledgers, such as blockchain. This ensures that all transactions and interactions are immutable and recorded. This ensures users are aware of exactly what information they are parting with and tracking any transactions that may have occurred. 

Decentralized identity vs. centralized identity

Decentralized and centralized identity management systems may look very similar on the surface. In reality, however, there are key differences between the two. Centralized identity management systems retain key PII and other data about individuals, including personal names and email addresses. Decentralized identity management systems allow end users, whether employees or customers, to control their own data. They have direct control over their identity information and can easily share or deny access to that data if they choose to.