What Is Decentralized Identity?

Spirit Labs
5 min readMar 1, 2022

“Decentralized identity (DID) is a trust framework in which identifiers, such as usernames, can be replaced with IDs that are self-owned, independent, and enable data exchange using blockchain and distributed ledger technology to protect the privacy and secure transactions.” — microsoft.com

For governments and enterprises, identity management is critical. They have traditionally relied on centralized methods of managing user identities. Decentralized identity, on the other hand, has emerged as a really revolutionary approach to managing access to a wide range of services and platforms in recent years.

Why is Decentralized Identity important?

The traditional vs blockchain-based ID (Source: Deloitte.fr)

Before Decentralized Identity appeared, there were 2 traditional types of Identity management:

  • Centralized Identity: This is the most common ID type, familiar to every person who has ever dealt with any subscription-based website or email provider. Centralized IDs are issued, owned, and stored by one issuer. They are used to access specific services provided by the issuer but cannot be used with other service providers. Examples of centralized identities are login credentials used to access email accounts or specific websites.
  • Federated Identity: This is typically issued by one provider but may be used to access multiple services, all of which are normally linked to the issuer. For example, a single login credential on Google may be used to access Gmail, YouTube, Google Office, and a number of other digital products of the company.

While federated identities are more convenient than centralized identities, they are still issued by one entity and do not belong to the user.

Let’s talk about traditional identities: When it comes to online shopping, our personal information, including name, address, and credit card information, may be stored at dozens of sites. By storing this information, future purchases can be made more easily — that is, assuming the consumer can effectively manage the dozens of usernames and passwords needed to log in to the sites. But there is a risk that comes with storing that data: We’re all familiar with the constant drumbeat of breaches at companies, users using weak passwords, phishing schemes revealing passwords to cybercriminals, fraud, theft, and businesses struggling to comply with regulations for protecting customer data.

As our lives become more linked with various applications, devices, and services, there are data breaches and privacy threats that we should be aware of. A decentralized identity system based on standards can give you more privacy and control over your data.

The Benefits of Decentralized Identity

  • Easily verified: Decentralized identity verification requires physical access to the user’s device or some other means to prove that they’re the rightful owner of that identity information.
  • Lower risk of mishandled data: The security of third-party data storage has been concerned due to data breaches. If those companies fail to secure data, millions of accounts will be harmed and threatened. With a decentralized identity, you can handle your information.
  • Transactions cannot be changed: By decentralizing information through blockchain signatures, altering verified information is nearly impossible. All transactions on the blockchain are immutable, preventing anomalies in the network and thus ensuring that verified data has not been tampered with.
  • Simple and convenient: Decentralizing identity simplifies the sign-up and sign-in process. Just prove your identity once to a trusted third party, then reuse that verified identity over and over again with your mobile device, eliminating the need for security questions.
  • Users are in control: By decentralizing data to store it on devices rather than on centralized databases, users get the final say over where, when, and how their information is shared.

How Decentralized Identity works

In decentralized identity, consumers use an app, referred to as a “Wallet,” that stores their credentials and personal information. Passwords don’t exist; they’re replaced with unphishable cryptographic keys which transparently authenticate users to businesses while also securing their communication.

These wallets also store verified identity details: name, age, address, credit card accounts, employment, citizenship, education, credit history — any information you might need to share to establish trust, prove eligibility or complete a transaction.

This information is signed by multiple trusted authorities to prove its accuracy and be shared with businesses or other individuals. The user is always in control, choosing exactly what to share about themselves and with whom — which is why this is referred to as “self-sovereign identity.”

What changes when we fully adopt a decentralized identity? Shopping sites don’t need to each build up and store personal details and credit card information. Instead, your verified payment and shipping information is securely transmitted from your wallet.

Less information stored in databases means fewer, less damaging data breaches and simplified compliance for businesses. Phishing to steal account passwords is eliminated, a memory of a less secure past. Loan applications that used to require mountains of paperwork are submitted and processed in seconds.

Why Decentralization Is The Future For Social Media


Concerns about censorship have always been an issue on conventional social media platforms. From Twitter’s suspension of Donald Trump’s account to the YouTube yellow monetization icon, it shows that freedom of speech on social media is somehow restricted. Since a decentralized social platform lacks a central censorship authority, this prevents the platform from having complete control of censorship.

Blockchain solves governance challenges

Blockchain makes governance open to a broader community and allows everyone to participate in the network. We can all be a part of the decision-making process and utilize our influence to guide the community. In a nutshell, blockchain replaces coercion with consensus.

Creator-centered economy

Today’s social networking giants, Facebook and Google, take advantage of user data to make money. Users produce the content, while these centralized institutions use their users’ vast amounts of data to sell highly tailored advertisements.

Blockchain-based decentralized social networks offer a different way of thinking about content and social media: change the paradigm from one where the social media network receives revenue for your content to one where you, the content producer, receive the compensation.

Privacy and security

Another major concern among traditional social networks is user privacy. Data storage on decentralized social media is saved on the blockchain to prevent the unauthorized sale of user data, increasing user privacy and security.


Article: How Decentralized Identity Is Reshaping Privacy For Digital Identities by Darren Shou

Article: What Is Decentralized Identity? Claiming the Rights to Your ID by Phemex

Blog: Decentralized Social Media: Major Changes Coming

Article: Reasons Why Decentralized Social Media Is The Future by Penny Fatherway



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