Decentralized digital identity is a framework that dictates that an individual’s private data should reside in a single, non-custodial identity wallet. In this way, individuals have full control over their digital identities and no longer rely on centralized entities to store and process their digital identities.

The use of blockchain to maintain decentralized digital identities can provide a strong guarantee for the security and privacy of digital identities, thereby effectively preventing data leakage and theft of user identities.

Today, the private data that makes up a person’s digital identity is often stored centrally and linked across devices, apps, and third-party services. Users have no control over what personal data is shared and how, making them vulnerable to data breaches and cyberattacks.

The advent of Web3 has changed the way we interact online. Blockchain-based applications can operate independently without intermediaries, creating a decentralized network where individuals are the sole owners of data. Web3 users can customize their own profiles, store personal data in a single account and use them for any online purpose, from accessing social media platforms down to logging into cryptocurrency wallets.

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What is Decentralized Identity?

Decentralized identity is an emerging idea that asserts that identity data can only be held by the individuals who represent the identity data. Users can generate and control their own digital identities without relying on third-party service providers. Specifically, Decentralized Digital Identity (DDID) is a decentralized system that aims to reconstruct current centralized identity management practices through blockchain technology.

For example, a digital credential standard called Verifiable Credentials (VC) can tokenize user identities, allowing them to be stored in non-custodial wallets. Users may release all or part of their identity and personal information (such as country, bank, or school) to third parties at their own discretion. It also makes it easier to store information in a single source. Another example is Self-Sovereign Identity (SSI), which focuses on verified real credentials, i.e. verified real credentials linked to real-world verified data in a decentralized manner.

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How does decentralized identity work on Web3?

Decentralized identities give users full control over their personal data online. On Web3, users from different backgrounds can communicate and interact in new ways, such as through tools such as NFT and blockchain. These tools are vital in driving and leading users to a new world of freedom and rights. Anyone can create their own NFT avatar, and each NFT contains a unique identifier that cannot be copied. In this way, interactions in the digital community are safer.

Typically, decentralized identities utilize some form of decentralized storage, such as a non-custodial identity wallet, that holds an individual’s decentralized identifier (DID). Decentralized storage can be in the form of an app or a browser plug-in wallet that allows users to create decentralized identities and manage third-party service providers who access them. In this design, the user is the sole owner of various public and private encryption keys. Some wallets use other authentication methods to keep users’ data safe. For example, Self-Sovereign Identity (SSI) associates user credentials with real-world verification data such as biometrics and stores them on the blockchain. It also helps users manage their digital identities on their own without relying on third parties. More importantly, SSI stores information in a non-custodial wallet controlled by the user alone, ensuring the safety of personal data.

To verify identities in the Metaverse, users can sign transactions with private keys or biometric data on applications that allow verification using decentralized identities. The service provider will then use the user’s shared decentralized identity to look for a matching unique DID on the blockchain.

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What is Soulbound Token (SBT)?

The concept of Soulbound Token (SBT) was proposed by Vitalik Buterin, co-founder of Ethereum (ETH). unique. SBT works like an achievement badge, storing a variety of personal information such as resumes, educational credentials, club memberships, and more. Because SBT is publicly traceable, it is nearly impossible to produce fake credentials. For example, Web3, a company that recruits software developers, can use SBT to verify candidates’ credentials, or artists can issue NFTs in Soul to verify that their artwork is authentic.

There are many benefits that users can gain from SBT, changing the way we view social identity in real life. These tokens serve as a form of identification and are used to confirm their reputation, potentially building trust in a decentralized environment.

The emergence of SBT shows that Web3 is not just a financialized asset. SBT stands for User Credentials and thus has the potential to add a real sense of human connection and community to the digital world. For example, SBT describes qualitative characteristics of an individual such as achievements, abilities, membership, etc. SBT is one of the building blocks that will change the way humans interact on the blockchain, such as the combination of resumes and online social media profiles.

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Benefits of Using Decentralized Identity

Decentralized identities give users the right to fully supervise their digital identities, and users do not need to log in through a centralized server. Controlling their metaverse identity and biometric data in a Web3 environment becomes easier because users don’t have to enter their identity wallet username and password.

With decentralized identities, users can control which data is shared with which service providers. This way, power is back in the hands of the user, so managing data through a single identity wallet may be a no-brainer.

Using blockchain to manage decentralized identities also enhances security and privacy guarantees. Users are protected from hacking and identity theft because the data cannot be unlocked and viewed until the correct digital signature is entered. Decentralized identity data stored on the blockchain is immutable and less vulnerable than data stored on centralized servers. Once data is recorded on the distributed network, it cannot be deleted or edited, so external entities cannot modify user records.

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Conclusion

Decentralized digital identities are one of the latest technologies that help drive the Web3 revolution forward. Users can easily access all accounts without having to remember multiple usernames and passwords, and enjoy advanced security and data protection in the Metaverse. At the same time, organizations can provide personalized services to users while protecting their privacy. Now that both start-ups and established enterprises have begun to adopt decentralized technologies, such as Microsoft’s new Entra, which allows users to authenticate, protect and manage various identities and access requests, decentralized identity may be realized earlier than expected. However, achieving decentralized identity on a global scale will not be achieved overnight, and will require the cooperation of businesses and governments.

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