Decentralized Identity: Why It's the Next Big Thing in Blockchain Technology

Decentralized Identity: Why It’s the Next Big Thing in Blockchain Technology

There are plenty of upsides to an interconnected world. The ability to send information in real-time has radically altered how people live, learn, work, and do business, among other things, for the better. However, it also has its downsides, such as the rising frequency of data breaches. According to Forbes, more than 4.1 billion records have been exposed through data breaches in just the first half of 2019. Presently, it’s estimated that more than 53 million individuals have had their confidential information compromised as a result of data leaks, breaches, and exposures. 

Blockchain Technology and How It Ensures Data Fidelity

Experts are looking into various means of improving data security without compromising accessibility, and one that shows much promise is blockchain technology. People have become familiar with blockchain technology in recent years as it is integral in the development of cryptocurrency, a popular investment avenue for tech-savvy individuals.

A blockchain serves as a decentralized and immutable ledger for recording and tracking transactions between asset holders. It works by collecting transaction information into a timestamped block and adding the said block to a previously filled block of data, hence its name. Then, that chain of information is duplicated and distributed to a network of computers.

As such, cryptocurrency owners who have a Monero wallet or other means of managing their digital coins don’t actually “store” their crypto in their wallets. Rather, the coins are stored in their respective blockchain systems, and the wallets give owners the ability to access their cryptocurrency holdings and take part in transactions. This way of recording information makes it impossible for hackers to change or cheat data in blockchain systems. 

Decentralized Identity and Its Role in Improving Data Privacy 

Blockchain technology’s capability to securely store transactional data can also give people complete ownership and control over their personally identifiable information (PII) and its distribution. Instead of entrusting their PII to a centralized third party such as their bank or hospital, for example, people can store their PII in their identity wallets and only allow third-party providers access to the information essential to the services they provide. The provider, then, must request the express approval of a user before they can share their authenticated identity wallets with others. This can lower a person’s risk of exposing their PII in case one or more of their service providers are targeted in a cyberattack or embroiled in a data breach. 

Self-sovereign identity (SSI) is an approach to data privacy and security wherein a person is given complete control over their PII through the use of decentralized networks. Aside from blockchain technology, SSI is made possible by verifiable credentials (VC), which can be the PII owner’s private key, and decentralized identifier (DID), which the controller can attach to any unique subject, person, or organization. Here’s how the process works:

● The PII owner stores their personal details in identity wallets that are then encrypted. 

● A wallet generates a pair of private and public keys, which are then published in a blockchain.

● This action gives the identity wallet a DID, which the PII owner can share with a third party.

● The said party looks for the shared DID in the blockchain.

● If the exact DID is found, the blockchain fetches the matching data.

● The PII owner signs this transaction with their private key to authenticate it.

● Finally, the third party confirms a successful authentication and enables the PII owner to access their products and services. 

The process enables the authentication of sensitive personal and financial information without necessarily sharing the said details with the third party that a user is transacting with. This improves the integrity, security, and privacy of everyday processes such as online shopping and paying for utilities.

The Potential Use and Challenges of Decentralized Identity

Blockchains are impenetrable by design. Hackers and cybercriminals need to tamper with entire blockchains and their duplicates distributed in a network of computers and wallets in real-time to ensure that their activities are not traced or impeded by concerned individuals. Thus, making use of decentralized identity significantly lowers the risk that a person’s information will be altered, exposed, or used in any way without their consent and express approval. 

There are plenty of hurdles before this can be an option for everyday consumers and businesses, though. Decentralized identity is still in its infancy, and much still needs to be done to promote its widespread adoption among individuals, governments, and private organizations. The good news is that DID initiatives are slowly but surely making progress in promoting this security and privacy option more accessible to the general public.

At the pace that the world is adopting digital technologies, it might not be long before people have better control of their personal information and privacy in a highly interconnected and digitalized world.

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