May 22, 2023
Table of Contents
Introduction
In today's digital age, where personal data is constantly collected and shared, there is an increasing need for identity solutions. Traditional identity management systems often suffer from privacy concerns, security vulnerabilities, and lack of user control. This is where decentralized identity steps in to address these challenges.
Decentralized identity puts individuals in control of their own digital identities, allowing them to manage and share their personal data on their own terms.
In a world where data breaches and privacy violations are frequent, decentralized identity offers a promising solution. By shifting control and ownership of identity data to individuals, it empowers users, fosters trust, and paves the way for a more secure and privacy-enhancing digital ecosystem.
According to a report by Grand View Research, the global identity and access management market size was valued at USD 15.93 billion in 2022 and is projected to expand at a compound annual growth rate (CAGR) of 12.6% from 2023 to 2030.
The global decentralized identity market size is poised to generate revenue of around $6,822 million in 2027 and is expected to grow at a CAGR of 88.7% from 2022 to 2027, a study by Markets And Markets states.
What is identity management
Identity management refers to the processes, systems, and technologies used to manage and control the digital identities of individuals within an organization or system. It involves establishing, maintaining, and governing the identities and access privileges of users, ensuring they have the appropriate level of access to resources and information based on their roles and responsibilities.
Identity management encompasses various tasks and features, including user authentication, authorization, and provisioning.
Identity management has become increasingly important in the context of digital transformation, cloud computing, and remote work, as organizations need to manage user identities across multiple platforms, applications, and devices while maintaining security and compliance.
However, the internet lacks a native user authentication system or identity layer, resulting in a fragmented landscape of authentication solutions and disparate login methods managed by various applications. These identities are predominantly centralized and isolated, offering limited rights and imposing specific behavioral requirements. Moreover, centralized identities are susceptible to theft and censorship, posing significant risks to individuals and their digital interactions.
What is Decentralized Identity
Decentralized identity, often referred to as self-sovereign identity (SSI), is an emerging concept and technology that aims to give individuals greater control over their digital identities. It shifts the control and ownership of identity data from centralized authorities, such as governments or corporations, to the individuals themselves.
In a decentralized identity system, individuals have the ability to create and manage their own digital identities using cryptographic techniques. These identities are based on decentralized identifiers (DIDs), which are globally unique identifiers that are linked to an individual or entity's public key. DIDs can be stored on distributed ledgers, such as blockchain, or other decentralized networks.
The principles of consent and data minimization are inherently embedded within self-sovereign identity, further safeguarding user autonomy and privacy.
Key characteristics of decentralized identity are:
- Individuals have complete control over their identity information and can choose what personal data to share, with whom, and for what purposes.
- decentralized identity systems aim to protect user privacy by minimizing the amount of personal data shared with third parties. Instead of sharing all personal information, users can provide selective disclosures, sharing only the necessary data for specific interactions.
- decentralized identity systems are designed to be interoperable, meaning that identities can be used across different platforms, applications, and organizations without relying on a central authority.
- by using cryptographic techniques, DI systems enhance security and protect against identity theft and fraud.
Decentralized identity serves as a crucial foundation for fulfilling the vision of decentralization in Web3 or blockchain technology. It plays a pivotal role in driving the adoption of Web3 and effectively addresses the limitations associated with centralized identity systems. The emergence of decentralized self-sovereign identity not only reinforces the principles of Web3 but also paves the way for broader acceptance and utilization of decentralized technologies.
Market size
The Decentralized identity technology is still in its nascent stage, experiencing rapid growth and evolving dynamics. There is a growing interest and momentum around decentralized identity solutions.
Several factors contribute to the positive outlook for the decentralized identity market. The increasing focus on privacy, data protection, and user control over personal information drives the demand for decentralized identity solutions. Additionally, the rise of digital transformation initiatives, the adoption of blockchain technology, and the need for secure and seamless digital interactions further contribute to the market's growth potential.
Numerous organizations, including technology providers, blockchain startups, and industry consortia, are actively working on decentralized identity projects and solutions. Standards bodies and open-source communities are also collaborating to develop interoperability standards and frameworks for decentralized identity.
According to a report released in 2022 by cheqd, the estimated total addressable market for self-sovereign identity is valued at approximately $550 billion. Furthermore, McKinsey conducted an analysis of seven focus countries and estimated that achieving full digital identity coverage in those countries alone could contribute 3%-13% to their respective GDP by 2030.
Additionally, a report by Markets And Markets states that the global DI market size is poised to generate revenue of around $6,822 million in 2027 and is expected to grow at a CAGR of 88.7% from 2022 to 2027.
These figures highlight the significant economic potential and market value associated with self-sovereign identity solutions.
How it works
Decentralized identity relies on the principles of public key cryptography. Each user is assigned a unique public-private key pair, where the public key generates a distinct address and the private key acts as a password for authentication. This private key is securely stored within a Web3 wallet, enabling users to connect with Web3 websites and decentralized applications. This integration allows individuals to seamlessly utilize their digital wallets across various apps, promoting interoperability.
Ethereum Name Service (ENS) serves as an excellent illustration of a decentralized identity stack. It operates as an open-source, blockchain-powered identity protocol. Through ENS, users have the ability to generate a distinct username NFT, which is capable of linking to their wallet. This unique identification empowers individuals to carry a consistent and recognizable ID across various Web3 applications.
One notable decentralized identity solution is Sign-In with Ethereum, which was launched in 2021. This solution allows users to utilize their Ethereum account and associated ENS name as identifiers across various services. By using their preferred Web3 wallet, users can connect to their underlying Ethereum accounts and use their ENS names to log into applications such as decentralized social and gaming platforms.
Advantages of Decentralized Identities
Decentralized identity offers several advantages compared to traditional centralized identity management systems. Here are some key benefits: user control, privacy enhancement, security, interoperability, reduced identity fraud, improve trust and transparency:
Additionally, decentralized identity has the potential to empower individuals in underserved populations who may lack traditional forms of identification. By enabling individuals to create and manage their digital identities, decentralized identity systems can facilitate access to services, financial inclusion, and participation in the digital economy.
Decentralized identity offers a distinct advantage over centralized platforms. Unlike the latter, which possess complete access to all account-related data such as facial features, location, sign-ins, interactions, and payments, decentralized identity empowers users to exercise control over the information they share with specific applications, based on their unique needs and circumstances. By allowing users to selectively disclose only relevant pieces of information, decentralized identity significantly reduces the potential risks associated with credential theft or loss.
By possessing an on-chain decentralized identity, users gain the ability to engage directly with diverse protocols and platforms, eliminating the need for Internet big corporations to act as intermediaries.
However, identity technology is currently in a state of evolution. To ensure its widespread adoption, challenges must be effectively addressed.
Risks of Digital Identity
As with any emerging technology and its applications, there are inherent risks involved. The industry and ecosystem continuously gather valuable insights and lessons through the deployment of these technologies across various use cases. This iterative learning process helps identify and mitigate risks, allowing for the development of best practices and safeguards within the evolving technological landscape.
The emerging technology risks are higher in the early adoption stages like decentralized identity is.
There are actually risks involved with the use of decentralized identity, the main ones are:
- software and security challenges,
- loss or theft of private keys,
- malicious nodes intercepting and cloning personal information
- commodification of personal data.
Conclusions
The increasing frequency of identity theft underscores the urgency for stronger and more robust authentication methods.
Decentralized identity offers a transformative approach to identity management in the digital space. It brings numerous benefits and addresses key challenges associated with traditional centralized systems.
Brightnode offers Web3, Crypto and Blockchain Strategic Consulting.
In fact, decentralized identity represents a paradigm shift towards user-centric and privacy-enhancing identity management. It offers a more secure, transparent, and inclusive digital landscape, where individuals have greater control over their identities and personal data.
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About the Author
Beatrice attended a Bachelor's degree in Italian Language, Literature and Civilization and got her Master's degree in 2020 at the Institute of Italian Studies of the University of Italian Switzerland (USI) in Lugano. Next to her humanistic education and passion for art history, she develops a personal interest in the field of communication and content creation, which she deepens in 2021 by attending a social media marketing training course. Since 2020 she has been part of the BrightNode team as a content writer.
