Apr 27, 2023

Chain Research - How Are Decentralized Digital Identities Managed on the Blockchain?

As modern civilization migrates deeper into the cyber age, it's becoming increasingly clear that traditional forms of identity verification are becoming inadequate. Passwords can be hacked, personal information can be stolen, and centralized systems can be compromised. That's where Decentralized Digital Identity, or ‘DDI’ comes in. By placing the power of identity verification into the hands of individuals, rather than corporations or governments, DDIs offer a more secure, private, and convenient way to navigate the digital world. In this blog, we'll explore what DDIs are, how they work, and why they're crucial for a future where our digital identities are just as important as our physical ones.

What is a Decentralized Digital Identity (DDI)?

Web3 is a decentralized, blockchain-based version of the internet that aims to give users more control over their data and online identities. The current version of the World Wide Web is a system dominated by institutions that possess significant control over our personal data. Decentralized Digital Identity, sometimes referred to as “self-sovereign identity”, is an innovative digital identity management model that empowers individuals with complete control and ownership over their data.

The digital identity management system uses blockchain technology to implement a secure and decentralized platform for individuals to control their own identities. Unlike traditional identity systems, DDI allows individuals to store their identity data on a decentralized network rather than on a centralized server.

For example, imagine you're a frequent online shopper. Your centralized identity is tied to all the different online stores you visit, and each one has access to your personal information. With DDI, you could create a digital identity that's separate from each online store. You would have control over your data and could choose which stores you want to share your information with.

In comparison, traditional identity systems rely on centralized servers to store user data. This means that individuals have to trust these servers and the organizations that manage them to protect their data. Unfortunately, this trust is often misplaced, as centralized servers are vulnerable to hacking and data breaches.

On the other hand, DDI uses a decentralized network of nodes to store user data. This means that there is no central point of failure, and the data is much more secure. In addition, because individuals have complete custody over their data, they can choose which entities they want to share their data with, providing an added layer of security and privacy.

Benefits of Decentralized Digital Identity

Decentralized digital identities offer numerous advantages to both individuals and society as a whole. Here are some of the main benefits:

  • Increased Privacy and Security: DDI offers a higher level of privacy and security than traditional centralized identity systems. With DDI, individuals have control over their personal data and can decide who has access to it, reducing the risk of identity theft, data breaches, and other security issues.
  • Enhanced User Control: Decentralized digital identity gives individuals greater control over their personal information. With DDI, individuals can choose what information they want to share and with whom, ensuring that their data is not misused or abused.
  • Interoperability: Decentralized digital identity systems are designed to be interoperable, which means that they can work together seamlessly. This makes it easier for individuals to access and use their digital identities across different platforms and services.
  • Reduced Identity Fraud: Decentralized digital identity systems are more resistant to identity fraud and forgery than centralized identity systems. This is because DDI relies on cryptographic protocols and decentralized networks, making it much more difficult for bad actors to tamper with or forge digital identities.
  • Empowerment: Decentralized digital identity gives individuals greater empowerment and agency over their digital lives. With DDI, individuals can more easily participate in online communities, access services, and exercise their digital rights.

Imagine a freelance writer who relies on various online platforms to find work. With a DDI, they can more easily verify their identity to potential clients, protect their personal information, and build a trusted online reputation. Or, consider a refugee who needs to access essential services in a new country. With a DDI, they can more easily prove their identity and access critical resources like healthcare, education, and financial services.

The Technical Foundations of DDIs

Decentralized digital identity systems are a promising solution to the challenges posed by traditional identity management models. These systems leverage tamper-proof technologies to create a more secure, efficient, and user-centric approach to digital identity.

At the core of decentralized identity systems are Decentralized Identifiers (DIDs). DIDs are a new type of identifier that allows for the creation of unique digital identities that are not controlled by any central authority. These identities can be authenticated, verified, and accessed without the need for intermediaries, making them more secure and private than traditional identities.

To facilitate the use of DIDs, decentralized identity systems also use Verifiable Credentials (VCs). VCs are digital documents that contain verifiable claims about an individual's identity, such as their name, date of birth, and address. These credentials are issued by trusted sources and can be verified by anyone using cryptographic proofs, ensuring the authenticity and accuracy of the information.

A system that is currently in place to verify digital identities on the blockchain is Proof of Humanity. Proof of Humanity is a Sybil-proof list of humans on Ethereum, which combines webs of trust, reverse Turing tests, and dispute resolution to create a social identity verification system for humans. The purpose of the platform is to deter the creation of fake or spam accounts and create a trustworthy list of humans. Users can register on the platform by connecting their Web3 wallet, submitting their required details, uploading a video that includes a speech and an Ethereum address linked to their profile, and receiving at least one verification from a registered profile. After submitting the profile, users have to ask people they know to vouch for them, which adds greater protection to the whole system. Once the profile is submitted, it will go through several phases: Vouching, Pending Registration, Registered, and Pending removal. Users can challenge submissions that they think do not comply with the requirements for acceptance, and the decision goes to dispute resolution in an ERC 792.

One of the key benefits of decentralized digital identity systems is their use of blockchain technology. Blockchains provide a tamper-proof and immutable record of transactions, making them an ideal tool for storing and managing identity-related data. Decentralized identity systems leverage blockchain's transparency and security to create a trustless system for managing identities, removing the need for centralized identity providers and reducing the risk of data breaches.

Overall, the technical workings of decentralized digital identity systems are complex, but they offer a promising solution to the challenges of traditional identity management. By leveraging DIDs, VCs, and blockchain technology, decentralized digital identity systems create a more secure, efficient, and user-centric approach to digital identity that has the potential to transform the way we manage identity online.

Use Cases for Decentralized Digital Identity

Decentralized Digital Identity (DDI) has several potential use cases in various industries. Some examples include:

  • Financial services and banking: DDI can enhance the security and privacy of financial transactions by providing individuals with complete oversight over their personal data. It can also improve the efficiency of Know Your Customer (KYC) and Anti-Money Laundering (AML) processes.
  • Healthcare and medical records: DDI can help healthcare providers access patients' medical records securely and efficiently, while allowing patients to retain full ownership and control of their data.
  • Education and academic records: DDI can enable individuals to have complete control over their educational and academic records, allowing them to share this information with potential employers or educational institutions in an authentic manner.
  • Identity verification for travel and immigration: DDI can provide a secure and tamper-proof method for verifying an individual's identity and travel documents, which can improve the speed and efficiency of the travel and immigration process.
  • E-commerce and online marketplaces: DDI can help to reduce fraud and improve the user experience by enabling individuals to securely and quickly verify their identity and personal information during the transaction process.
  • Social media and online identity: DDI can provide individuals with complete control over their online identity and personal data, enabling them to securely manage their online presence across different platforms and services.

The Future of Decentralized Digital Identities

The future of Decentralized Digital Identity (DDI) is promising, with the potential to revolutionize the way we interact with digital services and each other. As more and more individuals recognize the importance of maintaining control over their personal data, the adoption of DDI systems is likely to increase. This, in turn, will lead to a more privacy-centric digital economy, where individuals have greater agency and increased autonomy over their data.

One significant impact of DDI on society and the digital economy is the potential for greater security and trust in digital interactions. By utilizing cryptographic protocols and distributed ledger technology, DDI systems can significantly reduce the risk of identity theft, data breaches, and other forms of digital fraud. This increased security could, in turn, lead to greater adoption of digital services, as individuals feel more confident in their ability to control their data.

DDI also has the potential to increase financial inclusion, particularly for those who are unbanked or underbanked. By providing a secure and portable digital identity, individuals can more easily access financial services, such as loans or investments, without the need for a physical identification card or other traditional forms of identification.

Furthermore, DDI can provide new opportunities for data sharing and collaboration while maintaining individual privacy. For example, by using verifiable credentials, individuals can share specific attributes of their identity with third parties, such as age verification for alcohol purchases, without sharing their entire identity. This can enable more personalized and targeted services while still preserving individual privacy.

Overall, the future of DDI has the potential to transform the digital landscape, leading to a more privacy-centric and secure digital economy, increased financial inclusion, and new opportunities for data sharing and collaboration.

Final Remarks

The importance of decentralized digital identity cannot be overstated in the digital age. As we continue to rely on digital technology for almost every aspect of our lives, the need for secure and reliable digital identity management becomes increasingly critical. Decentralized digital identity systems hold the potential to offer users greater control and ownership over their personal data, enhance privacy, and reduce the risks of identity theft and fraud.

While there are certainly roadblocks and challenges to overcome, including technical hurdles, regulatory barriers, and the need for widespread adoption, the benefits of DDI far outweigh the challenges. With continued innovation, collaboration, and investment, the promise of a decentralized digital identity can be fully realized, enabling a safer, more transparent, and equitable digital future for all.

With a rapidly evolving digital landscape, navigating the latest advancements in the decentralized realm can feel overwhelming. To stay ahead of the curve and maintain a competitive edge in emerging technology, subscribe to Chain’s email newsletter. By signing up, you'll gain exclusive access to the latest news, insights, and analysis on everything in the Web3 space.

About Chain

Chain is a blockchain infrastructure solution company that has been on a mission to enable a smarter and more connected economy since 2014. Chain offers builders in the Web3 industry services that help streamline the process of developing, and maintaining their blockchain infrastructures. Chain implements a SaaS model for its products that addresses the complexities of overall blockchain management. Chain offers a variety of products such as Ledger, Cloud, and NFTs as a service. Companies who choose to utilize Chain’s services will be able to free up resources for developers and cut costs so that clients can focus on their own products and customer experience. Learn more:

Connect with Chain for the latest updates.


Telegram: &






Chain News & Updates

Latest News & Updates

Sign up for the Chain Newsletter - a weekly roundup of new platform features and the latest from the industry.