Introduction to decentralized identity (DID) and how it works

5 min readMay 19, 2023

Identity is the collection of traits and qualities that serve to specifically identify a person or thing. Name, date of birth, address, biometric data, and other personal identifiers are a few examples of these traits. In today’s civilization, identity is crucial because it enables people to engage in social and economic activities, develop relationships, and access resources.

However, traditional identity management systems, controlled by governments or corporations, often fall prey to problems like identity theft, data breaches, and unauthorized access. These centralized systems can also be expensive to maintain and lack compatibility with other platforms and jurisdictions, hindering people’s access to specific services.

Here is where decentralized identity (DID) emerges as an effective solution to the inefficiencies of traditional methods of identity management. It aims to solve these issues by using an innovative identity management strategy. Meanwhile, DID systems are more secure and resistant to cyberattacks thanks to the use of decentralized networks to verify and authenticate identities.

WHAT IS DECENTRALIZED IDENTITY (DID)?

Decentralized Identity (DID) is a new approach to identity management that allows individuals greater control over their personal information. Unlike traditional forms of identity management, which rely on centralized systems, DID is based on decentralized networks that are distributed across multiple nodes.

At the core of DID is the concept of decentralized identifiers (DIDs). This is a globally unique identifier that is tied to a set of cryptographic keys. These keys are used to sign and encrypt data, enabling individuals to prove ownership of their personal information and control how it is shared with others. DIDs are designed to be interoperable, meaning that users can use the same DID across different platforms and services.

HOW DOES DID WORK?

The basic architecture of a decentralized identity (DID) system consists of several components, including identity providers (IDPs), verifiers, users, and decentralized networks. These components work together to create a secure, user-centric identity verification ecosystem.

Furthermore, identity providers are responsible for issuing DIDs and verifiable credentials to users. They verify the user’s identity and create a unique DID tied to the user’s cryptographic keys. It should be noted that IDPs can be centralized or decentralized; they may be government agencies, educational institutions, or private companies.

On the other hand, verifiers are entities that rely on DIDs and verifiable credentials to authenticate the identity of a user. They may be service providers, financial institutions, or other organizations that require identity verification for access to their services.

Finally, decentralized networks are the underlying infrastructure that supports the DID system. They consist of distributed ledgers, such as blockchain or other decentralized technologies, that store and manage DIDs and verifiable credentials. These immutable networks ensure the security and integrity of the system by providing a tamper-proof record of all operations.

CHALLENGES AND LIMITATIONS OF DID

While decentralized identity (DID) offers many potential benefits over traditional forms of identity management, there are also several challenges and limitations that need to be addressed. Some of the key challenges and limitations of DID include:

Interoperability and Standardization

One of the biggest challenges facing the adoption of DID is the need for interoperability and standardization. Different DID systems and networks may use different standards and protocols, which can make it difficult for DIDs and verifiable credentials to be easily shared and recognized across different platforms. This lack of standardization can also create barriers to entry for new users and service providers.

Technical Complexity

DID systems can be complex and difficult to understand for non-technical users, which can limit their adoption. This complexity can also make it difficult to ensure that DIDs and verifiable credentials are created, managed, and shared securely.

Potential for Centralized Control

While this mechanism is designed to be decentralized and give individuals more control over their personal data, there is a risk that new forms of centralized control may emerge. For example, some identity providers or verifiers may become dominant players in the DID ecosystem, which could limit user choice and control.

Regulatory and Legal Challenges

DID systems may face regulatory and legal challenges, such as compliance with data protection and privacy laws, from regulators who might not see the possibility of this decentralized approach

Adoption and Integration

Finally, the adoption and integration of DID into existing systems and applications may be challenging. Many organizations and service providers have already invested heavily in their current “traditional” identity management systems and may be hesitant to switch to new and unfamiliar technology.

USE CASES OF DID

Here are some current and potential use cases for decentralized identity (DID):

1. Digital identity for refugees

DID can be used to create secure digital identities for refugees and displaced people who have lost their identity documents. These identities can be used to access critical services like healthcare, education, and financial services and can help refugees re-establish their identities in a new country.

2. Self-sovereign identity for individuals

This identity verification process also enables individuals to create and manage their own digital identities, giving them control over their personal data and privacy. With self-sovereign identity, individuals can choose what information to share and with whom without relying on centralized authorities like governments or corporations.

4. Secure Financial services

Decentralized identity is used to create secure digital identities for individuals and businesses, enabling them to access financial services like loans, insurance, and so on. This can improve financial inclusion for marginalized communities that may not have traditional forms of identification.

5. Supply chain management

In addition to all the use cases discussed above, DID can also be used to create secure digital identities for products, enabling businesses to track the movement of goods while ensuring their authenticity. This can improve supply chain transparency and reduce the risk of fraud and counterfeiting.

Other current and potential uses of DID include:

Government Services
Social Media
Healthcare
Voting
Travel

CLOSING THOUGHTS

By providing unique digital identities that are self-sovereign and verifiable without relying on a central authority, DID empowers individuals and organizations to take control of their identity data. This innovative technology fosters secure and private digital interactions, free from the limitations and risks associated with centralized databases and third-party control. From overcoming identity-related challenges to enabling a wide range of use cases, decentralized identifiers bring us closer to a more inclusive, secure, and user-centric digital world.

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