You use some form of digital identity today. You may use your email and password to log in to services. Or, you use something like your Google account to gain access to different products. Decentralized identity, or DiD for short, lets individuals manage their personal information without relying on a central authority, using blockchain for security and privacy.
If you’ve bought an NFT, you’ve used a decentralized identity. You may have used a wallet like MetaMask or Coinbase Wallet, and logged in to an NFT marketplace. Maybe you even have a .eth (ENS) username that is tied to your wallet. These are all examples of decentralized identities.
What’s wrong with a centralized authority managing my information?
Most FAANG companies generate revenue with user data they collect. Some users accept this as a trade-off for access to services, while others may limit their digital footprint by using different browsers and search engines.
I’d argue that most consumers are oblivious—intentionally or otherwise—to the data that’s being collected, and the way it’s being profited from. This is partially explained by the privacy paradox, stating that “users are concerned about their privacy but undertake little to protect their data”.
There’s too much mental and emotional momentum in wanting something (a new book, a photo of a relative, a funny video) to overlook the downsides of experiencing these products. One argument used consistently by big tech—doing double duty as comms to users and building a story that they’re not a monopoly—is “you can always go elsewhere”. Elsewhere we can go with a decentralized identity.
My take: the amount of data on each person is actually less than it should be. More personal data does make better product experiences. Freddy FAANG isn’t lying about everything. Data collection is limited through laws, regulations, and by users deciding they don’t want their data stored, either consciously or intuitively.
What if all of your data, even more than today, was securely stored by you?
DiD could start by holding your identification data, so it’s easy to log in to websites. But also payment information, health information, government identification, and personal preferences. Self-custodial wallets, where your DiD would be held, offer better security with local encryption and biometrics on by default. With crypto, you also have instant global payments.
Imagine having a little personal assistant who knew your food preferences, what you were reading, and what you were watching on TV… and it created a personalized recommendation list for a new city you were visiting. Maybe even making reservations with your payment information.
With a decentralized identity, it would be possible to anonymously share this collection of data in a way that served you, not made money off you. Experiences like this are what DiD hopes to deliver.
DiD’s next big play
While the future is intriguing, there is a potential near-term play for DiD. A wallet could offer an alternative to a login service like Google, Microsoft, or Twitter login. This new version of identity wouldn’t just be more private and secure, it could enable better product experiences.
What problems could DiD solve, today?
Remembering and filling in passwords. Passwords suck to remember. And it’s practically impossible to remember “secure” passwords. This requires excess apps like password managers and 2FA authenticators. Think password managers are completely secure? Read this. Over time, hopefully, we won’t need any passwords with web3-style logins like “Log in with Ethereum”.
No more typing in credit card information. It’s not fun to type in credit card information every time you want to buy something. This problem is part of Amazon’s lock-in, just buy it off Amazon, it’s easier. Using Apple Pay on your phone is a good example of progress here.
No more taking a picture of your driver’s license to “verify your identity”. If you haven’t uploaded a picture of your ID to a questionable website URL, consider yourself lucky. It feels arcane, insecure, and weirdly personal. DiD could solve this problem with attestations.
In the midterm, anonymization and attestation could be built in. Not everyone wants or needs to be anonymous, but does a website you’ve never visited need your full name? Do you need more email? We’d get a quality-of-life upgrade by implementing anonymization via attestation and zero-knowledge proofs.
These problems are powerful and persistent enough to solve today, and DiD offers a path. As for the future, the bottleneck here might be crypto adoption and trust that self-custodial wallets can hold sensitive information securely. With more information, held by the owner, new products and experiences could be built. DiD’s future is bright.
This article includes images generated from AI.