Benefits of blockchain for digital identity management
It’s no secret that advances in technology and the digital space have and will continue to revolutionize just about every aspect of our daily lives. We have modernized how we manage our money, how we communicate, access entertainment, and even go about basic tasks such as shopping.
This computerization of systems driven by data and artificial intelligence (AI) has been described as the fourth industrial revolution. As we intertwine technology with our systems and processes, data privacy and digital identity have become matters of paramount importance.
According to the International Telecommunications Union (ITU), digital identity represents information recorded on digital platforms about a person, group, or organization.
It can be their physical address, bank account information, e-mail address, or their pictures on social media. This identity is not standard and differs across platforms such as e-commerce websites, banking systems, or social media channels.
Unfortunately, many people, lobbying groups, governments, and companies have raised the alarm on the rising cases of identity theft. The existing identity management system is not as reliable or secure as people believe.
Numerous data breaches have led people to bear serious concerns about the privacy of their data. As a solution, calls for data systems to adopt blockchain identity management have been growing. Blockchain provides a more secure system of storing digital identities by offering tamper-proof and unified infrastructure for both organizations and individuals.
Below is an in-depth look into the importance of digital identity in the modern world, how digital identity works today as well as what blockchain technology, how it works, and how it can be leveraged for better digital identity management.
The importance of digital identity
Digital identity is an important aspect of online financial transactions. A robust digital identity management system helps make sure a customer to business interaction is accurate and non-fraudulent thus helping prevent Anti Money Laundering (AML) activities.
Digital identity management can also help governments provide multiple services to their citizens much more effectively. A good example of where digital identity is used to uplift communities both socially and economically is in the delivery of citizen welfare measures.
Singapore, for instance, through the Smart Nation Initiative, has come up with the National Digital Identity (NDI) system, which is expected to help people securely access e-government services.
India has also generated the Aadhaar ID, a single digital identity that is linked to all social schemes and has changed how subsidies are paid out to sections of society that are not economically strong.
How digital identity works now
As highlighted above, Identity is a critical aspect of every functioning economy or society. People and organizations need to have a proper way to identify themselves and their assets. For people, this usually involves their full name, nationality, date of birth, and a national identifier such as a social security number, driver’s license, or passport number.
The national identifiers are issued by governments and the information is stored in a centralized database. People without a national identity can’t vote in elections, find a job, own property, get employed, or own a business. Without access to the financial system, people’s freedoms are consequently limited.
Despite this, governments, banks, and credit agencies are widely regarded as the weakest link in the current identity management system because of how vulnerable to hacks and data breaches.
User data collected by companies is usually stored as business data. But with the rise of regulations centered around user privacy such as the General Data Protection Regulation (GDPR), companies are held accountable to the public if they were to engage in corporate IT misdemeanor.
For instance, there are over 8 billion internet-connected devices today and that number is growing incessantly. It is no surprise that a company that has sold hundreds of thousands of active devices working with a few hundred outdated servers. But with blockchain technology, companies can handle user data in a more secure system which will ultimately add value to their business.
What Is blockchain?
The first model of a blockchain was made in the early 90s by physicist Scott Stornetta and computer scientist Stuart Haber. They used cryptographic methods across a chain of blocks as a means of securing the data within several digital documents from being tampered with.
This technology inspired the creation of the first decentralized electronic cash system known as bitcoin in 2008. Although blockchain technology is much older than bitcoin or any other cryptocurrencies, it was only after 2008 that its potential began to be recognized.
Since then, interest in the technology has grown significantly. Despite it being used to record cryptocurrency transactions, it can be used for other sorts of digital information across a wide variety of applications.
How does blockchain work?
Also known as Distributed Ledger Technology (DLT), blockchain technology allows the storage of data on thousands of decentralized databases (blocks) through a peer-to-peer (P2P) network.
It lets anyone on the network see everyone else’s real-time entries, rendering it difficult for a user to control the network. The decentralized databases, or blocks, contain information about transactions such as time, date, and the amount of money involved.
They also have information regarding the parties involved in the transaction. For instance, a transaction detailing what you bought from Amazon would have your name. However, instead of your actual name, the details would be recorded using a digital signature or a username.
Blocks also have information that sets them apart from other blocks. The same way a set of twins have different names to distinguish one from the other, each block has a unique code known as a ‘hash’. Hashes are cryptographic codes made by special algorithms that help identify different blocks.
Depending on the size of the transaction, a single block can house a few thousand transactions since one block contains around 1 megabyte (MB) of data.
Using blockchain technology in digital identity management
Since it was first used to track bitcoin ownership, blockchain technology has undergone significant developments so much so that it now has the potential to replace traditional mechanisms of identity management with a ‘self-sovereign identity’.
This is a highly trusted system that can give users better and more secure control over their identities. The self-sovereign ID can allow users to choose what data they want to stay private, to transport the data, and even delete the identity if they prefer to.
People would also use their self-sovereign identities to verify who they are as they perform online-based transactions. This is a big gamechanger in the way people use their identities to access different services online as it can completely eliminate the need for passwords.
At present, when we need to authenticate our identity, either our address, passport number, or name, a verifying entity confirms whether our data is true or false.
However, there are certain privacy concerns that come up during an identity authentication process. For instance, a verifying entity that requests you to prove your name using your passport can access more information in the document as they look at your passport. The entity doesn’t need to know your age or where you were born.
A blockchain identity management system that uses zero-knowledge proof can serve as a good solution to this problem. Zero-knowledge authentication is a method of data authentication that allows a verifier to prove an entity’s identity without revealing any added information that may or may not support the data in question.
The verifier has ‘zero-knowledge’ about the data supporting the proof but deems the proof provided as sufficient and valid. For instance, you can prove that you’re above the age of 25 without having to reveal your date of birth.
Archetypes of digital identity management
With the continued interlinking of digital applications and services with our physical lives, our digital identity is an online manifestation of ourselves that shapes how we use the internet and how we interact with other online users.
One archetype of digital identity management we use is known as the ‘federated model’. This is where both public and private organizations establish unique systems that are bound by agreements and each of the organizations is a trust-anchor.
This allows identity owners to use identity proof in different contexts. For instance, a driver’s license can be used to identify the driver of a car as well as to prove the owner’s age if need be.
Another archetype is a decentralized one where an organization issues unique digital identities to people so they may access its services. In this model, users require a new digital identity whenever they engage with a different organization. This model has, however, been criticized for providing a poor user experience.
The future of blockchain technology
Digital identity management has become a vital issue that begs deep concern. Before the digital era, human identity was something that occupied much discussion between social scientists and philosophers.
Digital identity, however, is more machine involved. It is gradually becoming critical to allowing people to open bank accounts, vote, and even access education or healthcare.
Leveraging the benefits of trust and transparency provided by blockchain technology is important in helping us create a more data-secure digital world.