Integration of blockchain-based digital IDs in daily life

Over the past 13 years, blockchain technology has evolved into a number of applications – including finance, data, logistics and security. However, the idea of ​​using the blockchain’s unchanging abilities to identify people gained new life when Changpeng “CZ” Zhao visited the island island of Palau to start his digital residency program.

The blockchain identity management market is estimated to grow by $ 3.58 billion over five years from 2021 to 2025. Key factors include the growing demand for digitization and identity solutions that respect privacy. As a result, a myriad of solutions broke the market that covered this need in the form of non-fungible tokens (NFT), distributed ledger technology (DLT) and barebone blockchain technology.

Considering the abundance of uses that blockchain can serve on a daily basis, many government organizations began experimenting with the technology – and weighed heavily on central banks’ digital currencies (CBDCs) and verifiable and unchanging user identities.

Problems with traditional IDs

Proper identification – or ID-ing – of an individual has always been crucial for the authorities to ensure targeted delivery of services and quotas, among other requirements, that apply to this day. Ongoing advances in technology, however, provided the general public with tools to create IDs that are visually identical to the original. Given the blockchain’s ability to store immutable records, the authorities see the technology as a chance to fight fraud related to ID theft and counterfeiting.

With traditional paper-based IDs comes the difficulty of verifying their legitimacy across different systems. History has shown how people successfully use fake ID cards to claim unauthorized access to a myriad of benefits. However, technological advances such as blockchain have given the authorities the ability to issue verifiable certificates and IDs while ensuring the scalability, speed and security of the identity management system.

Efforts on this front saw the emergence of a new ecosystem consisting of various blockchain-based digital ID offerings. For example, Shubham Gupta, an Indian Administration Service (IAS) officer, recently spearheaded the launch of a polygon-based system for issuing verifiable caste certificates on behalf of the Maharashtra government.

He told the Cointelegraph, “if identity management systems have to be rated on a scale of 0 to 1 based on decentralization and individual control, traditional centralized ID systems will be far left and completely self-hosted, public blockchain-based IDs on the far right.”

Forms of blockchain-based digital IDs

While blockchain technology can and has been used as it is to maintain unchanging records over the Internet, innovations spanning the last decade have resulted in the birth of sub-ecosystems around the use of blockchain technology.

“The idea of ​​blockchain-based digital IDs has been around for a while, but came under the spotlight with the recent NFT boom,” blockchain adviser and Bundlesbets.com CEO Brenda Gentry told Cointelegraph.

While NFTs were first marketed as a tool to represent real objects, including intellectual and physical assets, the technology found itself well suited for a variety of applications. Recently, public organizations have begun testing NFTs for ID residents as a means of reducing operating costs.

“Wide-scale implementation of blockchain-based digital IDs – such as the issuance of national identity cards such as passports and driver’s licenses – takes time, but I strongly believe that it is the destination that the world should move towards,” Gentry added. In addition to helping to authenticate people, blockchain technology discourages attempts at forgery, tampering or identity theft.

Referring to the involvement of luxury brands and artists who promoted the use of NFTs to authenticate the legitimacy and ownership of a product or art, Gentry believed that “luxury goods can be verified for their authenticity on the chain, completely eliminating the chance of owning a counterfeit product.”

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Neil Martis, co-founder and project manager of LegitDoc, which is known for delivering a range of blockchain-based certificates and ID solutions to the state government of India, envisages a greater use of public blockchain-based accounts over the next decade. Web3-native decentralized IDs will play an increasing role in identifying users and authenticating them to participate in different types of Web3-native transactions.

Benefits of blockchain-based digital IDs

While blockchain’s elevator pitch is highly prone to immutability, the technology has several advantages over traditional software and paper-based systems. Opinions about the benefits of blockchain boil down to the control of personal information.

Self-sovereignty is one of the biggest benefits of blockchain-based digital IDs, according to Martis. This means that blockchain allows users to share partial or selective information with their service providers instead of handing over their full identity.

With blockchain-based IDs that eliminate information misuse, experts envision the birth of a truly untrustworthy system without the involvement of third parties. Gentry also reiterated verifiability, traceability and uniqueness as some of the biggest benefits of blockchain, as she emphasized that blockchain IDs cannot be duplicated because it is on the distributed ledger. “All digital IDs can be verified on the blockchain and can be traced back to the owners’ account which can also be used for Know Your Customer,” she added.

Restrictions on blockchain-based digital IDs

Regular acceptance of blockchain-based digital IDs will ultimately mean overcoming the most pressing challenges that threaten to prevent their use. Some of the roadblocks that stand out in today’s landscape include a lack of education among the masses and a supportive set of rules.

On the educational front, Gentry has noticed a rapidly changing scenario caused by mainstream discussions and widespread use of the technology. However, the creation of pro-crypto regulations will require greater intervention from industry actors to help countries and institutions access the blockchain network.

Martis agreed with Gentry’s views on regulations when he emphasized that blockchain IDs, no matter how decentralized, would need certification or recognition by the issuing authorities. He added: “If the issuing authorities do not recognize the validity of the blockchain IDs, the same cannot be used to use the majority of public services. In my opinion, this is the biggest limitation.”

Selection of block chain for ID-ing

Given that the majority of real-world identity systems are subject to governments and sovereign authorities, Martis envisages greater use of permitted distributed ledger networks for the issuance of identities that require public services.

Gentry noted that choosing the perfect blockchain to identify people or goods will require weighing the unique benefits and limitations of the various blockchain ecosystems. While highlighting existing concerns such as Ethereum’s gas charges or Solana’s notorious power outage, the blockchain adviser suggested that Binance’s BNB chain is the perfect choice of blockchain due to its high transactions per second and low latency and charges.

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Based on personal experience, Gupta shared that Indian state governments tend to choose a middle ground where instead of a single authority having full control over citizen identities, a group of independent departments will share a jointly distributed ledger that hosts citizen identities, on a regular basis. spaces anchored on a public blockchain.

The Maharashtra government is currently deploying a scalable blockchain-based ID system for a tribal population of 1.2 million. Martis explains that the IDs that are created will be used by different departments to perform analyzes and identify the right recipients for different national schemes.

Regardless of the challenges that slow down blockchain adoption across business verticals, the benefits of technology make its dominance inevitable. Public organizations and private entities have stepped up their efforts to uncover future-proof fintech solutions via blockchain innovations. Blockchain disruptions that are well positioned to go mainstream in addition to identity management include localized CBDCs, supply chain solutions and cross-border settlements.

Decentralized identities or DIDs (decentralized identifiers) have not yet seen comprehensive implementation. According to Martis, they should be settled or issued by highly decentralized public blockchains outside state control, adding that “Bitcoin and Ethereum stand out as the obvious choices in this regard.”