Decentralized Identity: Approaching an Inflection Point?

October 10, 2023

Decentralized identity: Is it approaching an inflection point? Explore the potential shifts in digital identity management.

When users control their identity identifiers and credentials and can move them from one service to another, it opens up many new opportunities for individuals, governments, and businesses. But how exactly will this happen?

This article will explore the underlying technologies that enable decentralized identity. It will also consider how these new systems will change existing centralized and federated approaches to identity management.


Authentication is a key use case for decentralized identity. When a user registers for a new online service, they typically have to provide an array of personal data that the company may process and share with other parties. With a decentralized digital identity, users hold the rights to their own information and can authorize service providers to access it only when needed to authenticate them. This means that they do not have to trust that the service provider will keep their data secure and private or comply with data minimization requirements.

Companies dealing with high volumes of customer identities face significant challenges and need to invest in a variety of different systems. For example, a customer might have multiple identities they adopt with different organizations such as their employer, bank, social media profile and local football club. A decentralized identity solution could allow them to manage all these identities in one place, giving the customer a single set of credentials that can be used across all those different services.

Another important use case for decentralized identity is the supply chain. Many companies are challenged by the cost and complexity of managing their relationships with suppliers, partners and customers. Decentralized identity solutions can help simplify those complex relationships and improve visibility into supplier compliance with regulatory or industry standards.

Similarly, government agencies are also looking to decentralized identity technology to reduce inefficiencies and improve services for their residents. Decentralized identity allows them to validate resident requests through distributed ledgers, cutting processing times from weeks to hours for frontline staff and freeing up technical resources for higher value work.

As these decentralized identity use cases begin to gain traction, the market will evolve. A number of vendors have entered the space and are bringing a range of technologies to it. These include blockchain, blockchain variants and other distributed ledgers, and decentralized identifiers like a DPKI or directed acyclic graph. The industry is also embracing standards that will guide its development. The Decentralized Identity Foundation is leading this charge, with its focus on open and standards-based decentralized identity systems.

Data Privacy

As personal data moves outside of traditional perimeters, the challenge for businesses is to provide trusted interactions across multiple channels. This is especially important in the case of healthcare and financial services, where individuals are accustomed to interacting with organizations they trust.

As a result, privacy laws around the world are evolving to give people back control of their data by requiring that companies share how their data will be used and what rights they have to change that use at any time. These requirements are challenging for organizations to comply with and manage at scale, particularly when dealing with petabytes of data.

A new approach is needed. This is where decentralized identity comes in. Decentralized identity is a set of technologies that enable users to create and own their own digital identities that they can then share with whomever they choose without the need for any centralized authority. These identities are not linked to any one organization or service, but instead can be verified and authenticated at the point of use.

These new decentralized identity tools allow for a more trusting and secure way to interact with business processes. It also reduces the amount of information that people have to share with organizations and allows them to revoke access to their data whenever they want. This will help reduce cyber crime and fraud which is a huge concern for consumers, especially when it comes to online services.

The first step to creating a decentralized identity is to get a unique digital ID. This can be done through a mobile app like Dock Wallet, where the user can fully own and control their decentralized identifier (DID) which they can then associate with verifiable credentials, enabling them to prove their identity at any point of use.

For example, when a job applicant uses their DID with the Dock Wallet app to apply for a position with Naturellica, they can verify their credentials and the company can instantly see that they are the real deal. This makes it easier for employers to hire quickly and efficiently, while reducing fraud and ensuring that high-quality job applicants are matched with the right opportunities.

Access Control

As with authentication, access control is another identity-related function that benefits from a decentralized approach. Users traditionally sign up for online services with a set of personal information that they then give to the organization to verify their identity. That information is then often stored by the service provider for use in their business processes or sold to third parties. With a decentralized identity system, a user holds a wallet with verifiable credentials for each service they wish to use. They can share only what they are comfortable sharing and have a means to revoke access to data any time they wish.

It’s a model that is much more suited to individual self-sovereignty and provides a way for people to protect their privacy while enabling them to take advantage of the services they want. It’s one that is supported by a growing movement of government and regulatory initiatives that seek to put individuals in control of their own data, such as GDPR and the California Consumer Privacy Act.

A decentralized identity system also makes it easier for companies to provide secure digital services for a global population. For example, when a newcomer to the United States can easily prove their home country’s citizenship with a verifiable credential based on their national ID or passport and then get a bank account and a credit card without having to visit a local branch, they can begin to participate in the economic opportunities of globalization.

While today’s business leaders may not be thinking about deploying a decentralized identity management system, they should keep in mind that it is likely to become mainstream technology over the next couple of years. And those who aren’t ready for it could be left behind.

To help businesses build decentralized identity into their digital infrastructure, Microsoft has launched an open standards-based solution for verified digital identities – the Decentralized Identity Foundation (DIF). Discover more about this technology and see how you can enable seamless user and developer experiences with our global service for trusted, verifiable credentials, Microsoft Entra. Sign up for a free trial now.

Self-Sovereign Identity

Currently, digital identity information is centralized in databases owned by large federated Identity Providers (IdPs). Individuals have no idea what data these IdPs collect about them or who it is shared with. As a result, individuals have significant trust dependencies on the IdP and are vulnerable to privacy breaches. Self-sovereign identity (SSI) provides an alternative to centralized systems by putting users in control of their personal data.

SSI is based on blockchain technology and allows people to share verified claims about themselves with anyone. They can choose to reveal only parts of their claim, such as age or education, rather than revealing all attributes. One of the first movers in this space is Sovrin, which uses Zero Knowledge Proof to provide this privacy. Another is Dragonchain, which enables you to choose who you want to verify your claim and only shares data with those you trust.

It has a lot of potential for use cases, such as the ability to quickly and securely onboard new employees at a business. It could also be used to prove that an individual’s degree or business license is legitimate even if the university or government agency that issued it has closed. In healthcare, SSI could help to speed up patient onboarding and verification and ensure that health records are not compromised.

The emergence of SSI represents the next step in the evolution of identity management. It has the potential to revolutionize authentication, access control and self-sovereign identity. It could bring us a better, more secure and simpler way to connect online and make the world more accessible.

As the SSI market continues to grow, it is important for organizations to understand how it will impact their security and identity management systems. It is also crucial to stay informed about the latest developments in this space and critically assess how they might impact your organization’s security risks. For more information, join our expert panel discussion on this topic and hear from Anne Bailey and Matthias Reinwarth about the role of SSI in contact tracing applications and immunization passports as well as other important use cases in their Analyst Chat podcast.

Ammar Fakhruddin


Ammar brings in 18 years of experience in strategic solutions and product development in Public Sector, Oil & Gas and Healthcare organizations. He loves solving complex real world business and data problems by bringing in leading-edge solutions that are cost effective, improve customer and employee experience. At Propelex he focuses on helping businesses achieve digital excellence using Smart Data & Cybersecurity solutions.

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