What is decentralized identity in blockchain?
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Autonomous identity is a concept that refers to the use of distributed databases to manage personally identifiable information.
The concept of self-sovereign identity (SSI) is at the heart of the idea of distributed identity. Instead of having multiple identities across multiple platforms or a single identity managed by a third party, SII users have digital wallets that store different credentials and can be accessed through trusted applications.
Experts distinguish three main components, known as the three pillars of SSI: Blockchain, Verifiable Identifiers (VC) and Decentralized Identifiers (DID).
Blockchain is a decentralized digital database, a ledger of transactions copied and shared between networked computers that stores information in a way that makes it difficult or impossible to alter, hack or cheat.
Second, there are VCs, which are called tamper-proof cryptographically protected and authenticated authorities that implement SSI and protect user data. They can represent information found in paper credentials, such as a passport or license, and digital credentials that have no physical equivalent, such as ownership of a bank account.
And last but not least, SSI includes DIDs, a new type of identifier that allows users to obtain a cryptographically verifiable, decentralized digital identity. DID refers to any subject, such as a person, organization, data model, abstract entity, etc., as defined by the DID controller. They are user-created, user-owned and independent of organizations. DIDs are designed to be decoupled from centralized registries, identity providers, and certificate authorities. They allow users to prove control of their digital identity without needing permission from any third party.
Along with SII, which has its roots in blockchain, DIDs and VCs, the distributed identity architecture also includes four other elements. They are the holder, who creates the DID and receives the verifiable credential, the issuer, who signs the verifiable credential with their private key and issues it to the holder, and the verifier, who verifies the credentials and can read the blockchain of the issuer’s public DID. In addition, the distributed identity architecture includes special distributed identity wallets that feed the entire system.
How distributed identity works
The basis of decentralized identity management is the use of decentralized encrypted blockchain-based wallets.
In a decentralized identity framework, users use decentralized identity wallets — special applications that allow them to create their decentralized identities, store their personal credentials, and manage their VC data, instead of storing identity information on multiple websites controlled by intermediaries.
In addition to the decentralized architecture, these distributed identity wallets are encrypted. Passwords to use them are replaced with encryption keys that cannot be fished and are not a single weakness in the event of a data breach. A decentralized wallet generates a pair of encryption keys: public and private. The public key separates the actual wallet, while the private key stored in the wallet is needed during the authentication process.
While decentralized identity wallets transparently authenticate users, they also protect user communications and data. Decentralized applications (DApps) store personal identifiers, verified identities, and information needed to establish trust, prove eligibility, or simply complete a transaction. These wallets help users grant and revoke access to identity information from a single source, making it faster and easier.
In addition to this, several trusted parties have signed this information in the wallet to prove its authenticity. For example, digital identities can be approved by issuers such as universities, employers or government structures. By using a decentralized identity wallet, users can prove their identity to any third party.