Explained: What is a decentralized identity (DID)

May 26, 20255 min read

TLDR;

Decentralized identity (DID) is an identity that doesn�t require a central authority

Blockchain technology powers decentralized identities

Decentralized identities provide seamless interoperability across multiple platforms

In this age of blockchain technology and advancement in internet technology, an identity is crucial to prove who you are. Legacy identities have flaws because threat actors can duplicate them for malicious purposes. Traditional or centralized identities are also rarely usable between platforms, requiring internet users to create multiple identities for every platform they visit. Decentralized identities solve these issues by being secure and interoperable between platforms. But what is a decentralized identity? Who manages it, how is it stored, and how does it compare to a centralized identity?

Let�s find out.

What is a decentralized identity (DID)?

A decentralized identity is an identity powered by decentralized technology like blockchain and is interoperable between platforms. Being decentralized, it doesn�t require a central authority to manage or dictate its use. A decentralized identity is also known as a self-sovereign identity (SSI). Self-sovereign because the holder has full control of the identity, and no government or third party can censor it.

The identity may point to a DID document that contains a holder�s details such as address, phone number, country of birth, and date of birth, among others. It can also store health information. Note that these details are optional.

Apart from an individual, a DID can also identify other entities, like a government or institution. Unlike a centralized identity system that stores personal information in a central place, a DID system distributes the information across hundreds, if not thousands, of nodes or computing devices.

The information is stored in no particular order. In a decentralized identity system, for example, a person�s first name can be on a computing device in Kenya while the second name is on a device in Iran, the first four digits of his phone number on a device the United States, while the rest of the numbers are in a computing device in Japan.

Apart from fragmenting the data across multiple devices, the data is also encrypted, meaning that numbers and names aren�t stored in plain text, boosting the security of decentralized identities.

A decentralized identity shouldn't be confused with a decentralized identifier. While the two are used interchangeably, a decentralized identifier is a component of a decentralized identity.

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How a decentralized identity works

The functioning of a decentralized identity involves three entities:

Holder - This is the actual holder of the identity. They are the owners of personally identifying documents like medical records, government-issued IDs, and education certificates, among others. A holder�s virtual asset wallet stores the credentials.

Issuer - An entity like a school, hospital, or government, issues the documents held by a holder. The issuing entity becomes the issuer.

Verifier - This is a third party that accesses the blockchain to verify that the information provided by the holder is true and verifiable. Note that a verifier doesn�t add or remove information provided by the holder. Their work is only to verify.

Here�s an example of how the three entities work together. Let�s use a person who has applied to become a manager at company X. The main qualification is a doctoral degree. Let�s call this person James.

Here�s the logic:

James (holder) starts by creating a DID and stores it in his wallet. He goes to his university (issuer), which, with its own DID, signs a copy of his doctorate. James� wallet stores the signed copy. James then sends his DID to company X. Note that at this point, James� DID includes the signed copy of his doctorate. Company X (verifier) cross-checks the blockchain to verify the holder�s and issuer�s decentralized identities.

N/B. Digital documents stored inside a holder's virtual asset wallet are called verifiable credentials.

What is a decentralized identity: Application

DeFi - DIDs allow holders to access multiple DeFi platforms using a single verifiable identity and without the need to go through the know your customer (KYC) process each time they use a new DeFi platform.

Voting - DIDs allow voters to cast tamper-proof votes.

Medical records - DIDs can store a patient�s medical records and control how and who views them.

IoT security - IoT (Internet of Things) devices can use DIDs to prevent unauthorized access.

Data monetization - DIDs allow holders to use their data for economic benefits.

What is a decentralized identity: Advantages

Improving personal data control and privacy - Decentralized identities allow holders to control who views or accesses their data.

They are more secure - DIDs are more secure compared to centralized identities because they don�t store a user�s information in a single place or server, but rather the information is scattered across hundreds or thousands of devices across the globe.

They�re interoperable - One DID can is usable on multiple platforms.

Final words

From our above discussion on what is a decentralized identity, it�s evident that DIDs are the next frontier of identification in the blockchain and traditional spaces. Despite their numerous advantages and use cases, DIDs entrust the responsibility of managing them to the holder.