Top 5 Effects Blockchain Has On Digital Identity

Top 5 Effects Blockchain Has On Digital Identity

Blockchain News
July 26, 2022 by Diana Ambolis
With the growth of Industry 4.0, the technological revolution’s scope has exceeded many conventional boundaries. The world is currently getting ready to become accustomed to using autonomous and intelligent systems based on machine learning and data. Digital identity, however, is one of the key components of digital services. Is the blockchain technology equation for digital
Top 5 Effects Blockchain Has On Digital Identity

With the growth of Industry 4.0, the technological revolution’s scope has exceeded many conventional boundaries. The world is currently getting ready to become accustomed to using autonomous and intelligent systems based on machine learning and data. Digital identity, however, is one of the key components of digital services.

Is the blockchain technology equation for digital identity practical? Digital identity is the digital representation of data relating to a specific person, business, or group. Blockchain is like the new kid on the block with all the features to make digital identity management more engaging, safe, and versatile.

The market for digital identity technologies is new at the same time. Therefore, it’s critical to understand how blockchain technology affects digital identity and its potential for transformation. The following article provides a thorough overview of how blockchain affects digital identification and enables you to determine whether blockchain is a safe bet in terms of digital identity.

Why is digital identity important, and what is it?

It’s vital to consider the significance of digital identification before considering novel uses of blockchain for digital identity. Why is adopting blockchain technology in digital identity a cause for concern? The idea of digital identity has become overly broad, leading to the presumption that it simply refers to the personal information that is publicly available online. You would be mistaken if you believed that your digital identity solely consists of your social media profiles, email addresses, and home location.

The best real and online identities of a person are featured in digital identity. Your online presence, including your photographs, purchasing choices, website usage patterns, and bank account information, constitute part of your digital identity. However, there are differences in how digital identity is now represented across various platforms, such as financial systems, social media sites, and telecom networks.

The significance of digital identity would serve as the foundation for responding to the question, “What is digital identity in blockchain?” It is crucial for assuring accuracy while accelerating the customer onboarding process. Digital identification is also essential for fighting fraud and money laundering, which go hand in hand. Government services to citizens may be streamlined and standardized with digital identity management.

The ability of social transformation initiatives and the assurance of economic benefits for various communities through citizen welfare measures make clear the significance of digital identification. The National Digital Identity, or NDI, system of Singapore’s Smart Nation plan is one example of such applications of digital identity. Citizens’ access to e-government services would be more secure thanks to the NDI system.

State of Digital Identity Currently

Before you can evaluate the efficacy of digital identity blockchain projects, you must first understand the current condition of digital identity. For businesses, people, and Internet of Things (IoT) devices, the concept of digital identity operates in diverse ways. Here is a summary of how digital identity functions for various populations.


As they acquire sensitive user data, organizations face severe hurdles in managing digital identities. These organizations store user data along with ordinary business data. At the same time, the organizations must abide by privacy-related laws. On the other hand, the data that is kept up in extremely secure data vaults is hardly ever used by businesses. As a result, businesses could not fully utilize their digital identity management capabilities.


One of the essential components for ensuring a society’s and its economy’s functioning is identity. Digital identity could promote societally and market growth provided self-identification and asset ownership are properly handled. Only after considering how people already use digital identity has the idea of using blockchain for digital identity gained traction.

However, not everyone has access to physical forms of identity. Around the world, 1.1 billion people lack any means of claiming ownership of their identities. In an era where blockchain technology can revolutionize digital identification, this seems like a major issue.

IoT Hardware

Identity is not a challenging idea for organizations, people, or Internet of Things (IoT) devices. In 2020, there will be over 10 billion internet-connected devices on the planet, and by 2025, that figure might reach 22 billion. Most IoT technologies lack the necessary identity and access control tools. Security is sacrificed in exchange for fundamental management features for IoT devices. How do IoT devices use blockchain for digital identity?

Identity Issues with Digital Sources

Why do you need blockchain for digital identity? The current status of digital identity and the worries of organizations, people, and IoT devices have become abundantly visible. At the same time, it’s critical to recognize how digital identity blockchain projects can aid in fixing numerous identity-related problems already in existence.

Data security and accessibility are two prominent identification challenges that blockchain identity management systems address. Another benefit of blockchain technology is that it aids in the fight against the issue of false identities. Here is a summary of the issues with digital identification that led to the demand for blockchain in that space.

Data Protection

One of the most frequent points of emphasis in the identity data kept in centralized government databases would be the security flaws. The databases’ single points of failure are many, powered by outdated software. The vast, centrally located systems that contain the PII, or personally identifiable information, of numerous user accounts, are therefore prominent targets for hackers.

A recent analysis revealed that a significant portion of the targeted data in breaches was personally identifiable information. In reality, businesses in 2018 suffered an estimated loss of nearly $654 billion due to breaches in consumer data records.

Access to Digital Identity is Limited

Blockchain solutions for digital identity are necessary since many people currently lack access to digital identity. There are over 1.1 billion people without any form of identification globally. Traditional identification methods typically come with the burden of time-consuming documentation procedures, restricted access, and ignorance of personal identity and costs. People are therefore unable to have their own identity.

Identity is a critical requirement for accessing banking services and other social services like applying for jobs or using other government services. Blockchain-based identity may take off as more people have access to mobile devices than those without access to digital identities. Therefore, it could aid in promoting blockchain-based identity solutions for mobile devices with improved citizen requirements resolution.

Identity Theft

The digital identity environment needs more blockchain-based businesses to completely transform how users can profit from digital identity. The usernames and passwords for the websites allowed users to manage several identities. In these situations, users lack a standardized method for utilizing the data produced on one platform in programs on another platform.

Additionally, the limited connection between digital and physical identities offers more freedom when fabricating identities. However, the technological developments in cryptography could be used by blockchain digital identification projects to combat these problems. Blockchain can aid in the creation of new identity management systems with decentralized IDs and digital identity frameworks.

What does blockchain-based digital identity mean?

With potential advances, blockchain can address the urgent issues with identity management. Though many of you undoubtedly have reservations about blockchain’s role in digital identification. How does blockchain-based digital identification function? To find the answer, let’s use the working example of decentralized digital IDs on Ethereum.

Utilizing decentralized IDs, embedded encryption, and identity management are the key components of the notion of digital identity on Ethereum. To create and register a decentralized identifier, or DID, users must register with a self-sovereign identity and data platform. To minimize security risks, users can store the public keys on-chain or cycle their storage after creating a public-private key pair.

The decentralized identifier, or DID, is a key idea in using blockchain systems for digital identity. A private key secures the DID, a pseudo-anonymous identifier for a particular thing, person, or business. Private key owners can demonstrate ownership or control over a particular identity. Multiple DIDs belonging to one individual may limit the scope of surveillance across various daily activities.

You could, for instance, have a DID for your gaming account and another for a credit reporting app. Decentralized IDs also include a set of certifications or verified credentials that attest to the DID’s unique qualities. In most cases, the parties who issue verifiable credentials sign them cryptographically. DID owners might store the credentials independently, independent of any service provider.

Decentralized identities can be protected via cryptography, which is made easier by the security provided by private-public key pairs. While the private key aids in decrypting the communication connection to the identity, the public key can help with identity verification. Users could identify their identity by scanning a QR code to access particular services. The identification would confirm the ownership of the credential and determine if it was connected to the specific DID. Implementing decentralized identities in actual use cases will help you comprehend “what is digital identity in blockchain.”

Blockchain’s Effect on Digital Identity

Numerous candidates have emerged as a result of the advancements in technology for protecting digital identities, including robotic process automation and machine intelligence. In addition, when new solutions are adopted in centralized digital identity management systems, they become more expensive and less effective.

How can blockchain effectively address the issues with identity management? Blockchain-based digital identification projects can offer the perfect solution to the current issues in digital identity management, as opposed to handing over control of identity data to centralized organizations. A brief reflection on the benefits of blockchain for digital identity can be found in how digital identity functions in a blockchain with decentralized identifiers. The following benefits of blockchain for digital identity management solutions are also present.


One of the key factors influencing the development of blockchain-based digital identity businesses in the future is secure. Data that is kept on a blockchain is encrypted and kept in an immutable fashion. Additionally, it provides the advantage of security via cryptography to preserve digital identification data. Blockchain can therefore aid in ensuring that the digital identity is safe and simple to track. Furthermore, password protection vulnerability issues are eliminated by blockchain-based digital identity systems.


The next significant value of blockchain-based digital identification relates to privacy, as regulators are igniting discussions about protecting people’s sensitive and personal data. Effective “Privacy and Design” is made possible by the effectiveness of digital signatures and blockchain encryption. Additionally, the addition of digital signatures to every transaction can help to make them impervious to changes.


The blockchain-based digital identification system would offer flexibility for keeping track of each identity across all network nodes. Regardless of how data is distributed through peer-to-peer networks, its reliability is ensured by ongoing upgrades and identification checks.

Discovering how the blockchain network avoids a single point of failure will also help you understand the significance of “what is digital identity in blockchain.” Therefore, it would be challenging for hackers to undermine the integrity of digital identification data.


The benefits of blockchain-based digital identity systems emphasize gains in trustworthiness as well. Systems built on blockchains keep track of communication metadata in a distributed ledger, and consensus methods verify cross-node data authenticity. Another encouraging aspect of decentralization for digital identities is numerous authorities’ use of national identifiers.


The main advantage of blockchain solutions for digital identities would also include the component of simplicity. Blockchain frameworks should be able to make each stakeholder’s associated processes simpler. The identity management frameworks built on blockchain may clearly define the roles of identity issuers, owners, and verifiers.

Examples of Digital Identity on the Blockchain

The instructions on blockchain-based digital identification prominently showcase the blockchain digital identity company examples. BanQu, which focuses on Self-Sovereign digital identity, is one of the well-known instances of a decentralized digital identity platform. The platform would assist farmers in developing a special online identity for engaging with other farmers, governments, payment processors, banks, and aid agencies. Another well-known example of a blockchain-based digital identification is ID2020, a global alliance of public, non-government, private, and governmental institutions.

Also, read – The use of Blockchain from payments to digital identity management

Last Words

The social and economic well-being of individuals worldwide is becoming increasingly dependent on digital identification. People need it to exercise their right to banking services, vote, and access education. Reforms are necessary, nevertheless, as seen by the issues existing systems have with identity management. Interestingly, blockchain-based digital identification projects provide the perfect framework for modernizing digital identity management.

Blockchain offers the ability to link digital identity with verified credentials as well as the ability to create decentralized IDs. As a result, you may combine your digital identities from various platforms into a single one you own and control. Find out more about the applications of blockchain-based digital identification.