Blockchain Identity – Helpful or Not Really?

Software development

We all leave a deep digital footprint behind us every time we transact online. The more platforms we use, the more digital footprints we leave.

Blockchain-based identity systems can solve the digital identity problem in a new way. Among the many possible use cases for blockchain technology, digital identity management, and document verification is one of the most promising areas.

It can be foreseen that each person will have a particular set of digital attributes over time – people inevitably build ever larger communities, no matter how it affects their self-esteem.

How can blockchain be used in digital identity?

When a file is recorded on a blockchain, the authenticity of the information is ensured by the many nodes that keep the network running. In other words, the requirements from the users confirm the validity of all recorded data.

In such a scenario, nodes could act as an authority or government agency responsible for reviewing and validating digital records, in which each node would have a say, thus authenticating the data so that the files could ultimately be used in precisely the same way as and an official document, but with a higher level of security.

Significance of cryptography in this process

Understanding that a blockchain-based identity system does not need to be directly exchanged is essential. Instead, digital data can be transferred and authenticated using cryptographic methods such as hashing functions, digital signatures, and zero-knowledge proofs.

With the help of hashing algorithms, any document can be converted into a hash, which is a long string of letters and numbers. In this case, this hash will contain all the information used to create it, acting as a digital fingerprint. In addition, government agencies or other trusted organizations may provide a digital signature service to validate a document.

For example, a citizen can submit his document to an authorized body to create its unique hash (digital fingerprint). Based on the information provided, this institution makes a unique digital signature that confirms the validity of the soup, which acts as an official document of an individual.

In addition, zero-knowledge proofs allow the use and authentication of credentials or identity without revealing information about documents. This means that its authenticity can be easily verified even if the data is encrypted. In simple terms, you can use this type of evidence to prove that you are of legal age to drive a vehicle or go to a club without disclosing your exact date of birth.

Self-sovereign identity

Self-sovereign identity is a model where users have complete control over their personal information that can be stored on their accounts (an analogy with cryptocurrency wallets). In this context, decisions can be made about when and how the user’s personal information will be shared. For example, you can store credit card details in your wallet and then use your private key to sign a transaction and send that information to the recipient. This would make it possible to prove that the actual owner of this card carried out the transaction.

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While blockchain technology is primarily used to store and trade cryptocurrencies, it can also be used to exchange and verify personal documents and signatures. For example, an individual may have a government agency sign their Accredited Investor status and then submit proof of that fact to a brokerage firm via a zero-knowledge proof verification protocol. As a result, the broker can be sure that the investor has been appropriately accredited even if he does not have detailed information about his condition or income.

Pros of blockchain identity

Incorporating blockchain technology and cryptography into a digital identity can provide at least two significant benefits. First, users can better control the distribution of their personal information, significantly reducing the risks associated with storing data on centralized servers. In addition, blockchain networks can provide a higher level of privacy by using cryptographic systems. As mentioned earlier, zero-knowledge protocols allow users to validate their documents without giving the rest of the information.

The second benefit is that blockchain-based digital identity systems can be more secure than traditional ones. For example, it is relatively easy to verify the origin of an outgoing claim about a user through digital signatures. In addition, blockchain systems make it difficult to falsify information and effectively protect all data types from fraud.

Cons of blockchain identity

As with many possible use cases, there are some barriers to using this technology in digital identity. Perhaps the most challenging issue is that these systems will still be vulnerable to a type of fraudulent activity known as synthetic identity theft.

Synthetic identification combines valid information from different sources to create an entirely new identity. Since every piece of information used to create this kind of identity is good, some systems may recognize fake IDs as genuine. This attack is popular and widely used by criminals in credit card fraud.

However, this problem can still be solved using digital signatures so that the matched combination of documents is not accepted as a verified record in the blockchain network. For example, a government agency may provide digital signatures for each paper and a standard digital signature for all data registered to one person.

Another point to note is the 51% attack probability, which is more likely for small blockchain networks. This kind of attack can reorganize the blockchain by significantly changing the order of the records. This problem mainly affects public blockchains, where anyone can join the process of checking and validating blocks. In turn, private blockchain networks can reduce the likelihood of this attack since only trusted persons will act as validators, representing a more centralized and less democratic model.

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Blockchain identity verification

Blockchain identity verification based on distributed ledger technology holds great promise for the Identity and Access Management (IAM) market, creating secure storage and management of digital ID cards for companies and consumers. Also, to prevent massive database breaches, the technology can allow individuals to retain control over their digital identities (called self-sovereign identities).

Blockchain ID systems are ostensibly about storing digital identities on the blockchain. But it’s not just that – as you’ll find out in this guide.

Several blockchain identification solutions have emerged in recent years, including at the government level. In 2018, for example, the World Food Program (WFP) used an Ethereum-based identification system to deliver humanitarian aid.

Meanwhile, the ID2020 initiative is a global partnership dedicated to ushering in the next era of personal data governance. This alliance is between BLOK Solutions and Accenture, two startups specializing in blockchain digital identity services.

According to a report by Allied Market Research, the blockchain identity management solutions market was valued at just $107 million in 2018 and will grow to $11.46 billion in 2026.

Government, healthcare, and retail appear poised to be the main drivers of this staggering growth in the coming years.

Independent Identity (SSI)

A self-contained identity (SSI) describes a digital identity controlled and owned by the user.

SSI reserves the individual’s right to reveal different aspects of their identity in various domains and contextual settings. In other words, they are responsible for how their information is used, not the companies whose forms they fill out online. Identity sovereignty is stored in the user’s phone or distributed in a blockchain network.

As a kind of digital passport, the SSI system uses decentralized identifiers to enable verifiable, decentralized, digitized identities. Decentralized identities have the function of verifiable credentials such as usernames and passwords.

Sovrin is an open-access network that enables the online management of digital identity documents. Designed to “build on the existing system of separate identities, endless passwords, and insecure databases,” this non-profit network provides data indelibility and secure identity verification with lifetime validity.

The Sovrin network consists of distributed server nodes managed and administered by a set of trusted individuals called Stewards. Each node contains a copy of the registry, which verifies the validity of documents issued within the scope of the network. By using Sovrin, organizations can avoid the regulatory burdens associated with storing vast amounts of data that, as mentioned, can be easily misappropriated.

GlobaliD is another platform committed to issuing self-sovereign identities. GlobaliD identities are made up of a name and critical information that defines the user; this may include government identifiers such as name, date of birth, and address and more advanced identifiers such as biometrics, location information, and social media profiles.

Global iD’s lawsuit helps companies convince their users that they take security seriously since neither GlobaliD nor any of the other parties in the project can see users’ data without their express permission.

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Is it helpful to use digital identity?

Safety can lie in the basis of digital identity use, but even more interesting is that it is convenient to use. After all, people still leave their data on many online platforms because they want to get a service or product conveniently and quickly.

If crypto and blockchain are ever going to be mainstream, they need to be fast, and the user experience needs to be flawless. Part of the impeccable user experience is the product’s ease of use. The creation of crypto identification systems allows users to leave their (some) personal data on a particular device, allowing them to interact with various apps in their crypto ecosystems easily. Users can choose what information they want to share, depending on what apps they want to use, and they should also be able to delete their data at any time.

A new generation of more reliable wallets can be another excellent option for use. Stories about lost keys and funds are widespread. I have the opportunity to place your data, for example, fingerprints, on the blockchain; only you, with your fingerprints, can access a specific wallet. No more keys will be needed, which means no more lost keys.

But that’s not all; as soon as the data is on the blockchain, it becomes safe and accessible. There will be no data loss due to data center malfunctions. There will be no unavailability of data because the central organization decided that users can control their personal (digital) data more effectively.

Risks of using digital identity

But all these advantages have their price. The immutability of most blockchains is a double-edged sword. Placing information on the blockchain can also mean that it cannot be removed, exposing information that should not be disclosed.

The presence of the identity document can also pose a threat to confidentiality and security. A form of identification is needed that is reliable and secure and allows the submitter to choose when to share or not to share personal information.

Encrypting data before placing it on the blockchain is also associated with various risks. Although encryption may be safe now, that doesn’t mean it won’t be decrypted in the future, allowing other users to access data they shouldn’t have access to.


Considering all the above, blockchain identification has many possibilities and can help those who currently do not have access to identification, which often deprives them of many resources. This can also help the blockchain to enter the mainstream, and although putting personal data on the blockchain might be risky, it might be worth it.

Despite its shortcomings and limitations, blockchain technology has great potential to change the way digital data is verified, stored, and exchanged. While many companies and startups are already exploring this possibility, they still have a long way to go in perfecting this innovation. However, in the coming years, we will likely see many services related to digital identity management, where the blockchain will act as a critical element.