The Need for Decentralized Identifiers (DIDs) in the Digital Age

You're trying to sign up for a new service online, and yet again, you’re asked to upload a copy of your ID or type in your personal details. Each time you do this, you can’t help but worry about where your information is going and how it’s being used.

You’re not alone.

In today’s digital world, managing personal identities is becoming increasingly tricky, leaving us vulnerable to identity theft, data breaches, and privacy invasion. In 2021, Domino’s India faced a massive data breach where sensitive data of around 180 million orders was leaked—customers’ names, phone numbers, email addresses, delivery addresses, and payment details. The same year, T-Mobile suffered a data breach affecting 77 million people. It involved unauthorized access to customer data, which was later listed for sale on a cybercriminal forum. The company settled a class action lawsuit for $350 million and committed an additional $150 million to data security improvements.

This is where Decentralized Identifiers (DIDs) come into play, offering a way to control and protect your digital identity.

What Are Decentralized Identifiers (DIDs)?

Imagine you could carry your identity in your pocket, much like a digital ID card that only you control. DIDs are essentially this—a new type of digital identifier that allows you to own and manage your personal information without needing a central authority.

Decentralized identity is an identity management system that removes the need for third-party service providers to protect this data and gives control to the people.

Let’s understand this with the example of Alice. She’s just started a new job and needs to prove her identity to access various company services. Instead of handing over her personal documents to the HR department, Alice uses a DID. She presents a verifiable credential—like a digital badge—issued by her previous employer. This credential confirms her identity without revealing all her personal details. The HR system can verify the credentials through a blockchain network, ensuring Alice's information stays secure and private.

Why we need DIDs today

Decentralized digital identifiers have gone from being nice-to-haves to necessary tools . The reasons for this are compelling.

1. Combatting identity theft: Traditional identity systems are highly vulnerable. In 2023 alone, there was a 48% increase in cyberattacks targeting identity systems. Over 80% of data breaches involve compromised credentials. DIDs reduce this risk by eliminating the need for centralized storage of personal data.
2. Centralization risks: Centralized systems are single points of failure. The 2023 SolarWinds hack, which affected thousands of organizations, highlighted the dangers of centralized identity management. Because DIDs function on the blockchain, they are decentralized, and therefore not prone to centralization risks.
3. Securing user privacy: There’s a growing distrust in how companies handle personal data. According to the Identity Defined Security Alliance, 66% of consumers are worried about their data privacy. Gartner reports that DIDs significantly enhance user privacy by allowing individuals to share only the necessary information, thereby reducing the exposure of sensitive data.
4. Regulatory compliance: With data protection laws like GDPR, businesses need robust identity solutions, that DIDs can provide.
5. Cost benefits: Businesses can save up to 90% on identity verification costs with digital identity solutions, according to a McKinsey study

Applications and Use Cases of DIDs

There is a lot to be covered on the how of DIDs, but I want to take you through the why.

Imagine opening a bank account without the tedious paperwork. Financial institutions can streamline their Know Your Customer (KYC) processes using DIDs, cutting down fraud and boosting customer privacy. For example, the South African Reserve Bank is exploring DIDs to improve financial inclusion and secure transactions.

Next, think about the benefits of accessing your medical records from anywhere in the world, knowing they are secure and private. Estonia’s e-Health system uses blockchain and DIDs to ensure the privacy and security of patient data, making healthcare services more efficient and trustworthy.

DIDs have a place in education as well. Picture receiving your degree as a digital credential that you can share with employers easily. MIT has already started issuing blockchain-based diplomas, ensuring the authenticity and integrity of academic records.

DIDs can Empower the Unbanked and Underserved

In many parts of the world, millions lack access to formal identification, which limits their ability to access essential services such as banking, healthcare, and education. According to the World Bank, over 1 billion people globally do not have any form of legally recognized identification.

DIDs offer a promising solution to this issue by providing a secure, verifiable digital identity that individuals can own and control.

Let’s consider Raju, a man from a remote village who doesn't have a birth certificate or government ID. With the implementation of DIDs, Raju can create a verifiable digital identity using local community attestations or digital credentials from trusted organizations. This DID can then be used to access banking services, apply for microloans, or even participate in online learning platforms, thereby opening up new opportunities for personal and economic growth.

Applications in Humanitarian Efforts

DIDs can play a critical role in humanitarian efforts, particularly in refugee camps where traditional identification documents are often lost or destroyed. Organizations like the United Nations are exploring blockchain-based identity solutions to provide refugees with secure digital identities that can help them access aid, healthcare, and other essential services.

The ID2020 Alliance is a global partnership committed to improving lives through digital identity. They have pilot projects where blockchain technology and DIDs are used to provide digital IDs to refugees, ensuring their identities are secure and recognized across borders

From ensuring privacy to enhancing digital inclusion

Decentralized Identifiers (DIDs) represent a shift in how we manage digital identities. By addressing the core issues of security, privacy, and control, DIDs provide a secure, private, and efficient way to handle personal information. As cyber threats continue to rise and user expectations for privacy grow, adopting DIDs is becoming essential.

Moreover—and this reason ought to be most compelling—by providing a means for people to establish and manage their own digital identities, DIDs can significantly enhance digital inclusion. This is particularly important in the digital economy, where access to online services, financial systems, and even job markets increasingly depend on having a verifiable digital identity.

DIDs are a fine example of blockchain's benefits in action, and the time to embrace them across various facets of daily life—whether for business, socio-economic reasons, or otherwise—is now.