Dock’s expert team has developed cutting-edge blockchain-based solutions that empower organizations and individuals to create, control, fully own, and manage their digital identities. In this article, you’ll learn how blockchain identity management works and its top benefits.
- Identity management encompasses the processes, policies, and technologies to ensure that only authorized people have access to the technology resources.
- Many of the current digital identity management systems have downsides, including the risk of data breaches, a bad user experience with people having to manage so many accounts, and lack of control of user data.
- Benefits of blockchain identity management: enhances data security, faster verification/authentication processes, prevents identity fraud, reduces costs, creates an auditable trail of records, automates processes, facilitates data compliance, and improves accessibility to identity.
- Blockchain identity management can be applied to a growing number of use cases across a variety of industries and sectors including healthcare, financial services, supply chain, Web3, and retail.
- No personal identifiable information (PII) is stored on the blockchain.
Identity management, or identity and access management (IAM), applies to any situation where someone uses a login process to use an app or website and has specific levels of access to information, technology, or service. IAM is used for a variety of cases whether an individual is logging into websites for personal use or an employee using technology to do their job at an organization.
Because there have been so many problems around the world as a result of older, less secure identity management systems including data breaches, large-scale hacks, and sharing people’s sensitive information without their knowledge, there have been increasing regulations about how personal data is collected, stored, used, and shared.
Thankfully, blockchain identity management technology can effectively solve these problems by enhancing security, efficiencies, data accuracy, and accessibility at much lower costs.
What Is Identity Management?
Identity management is the framework of processes, policies, and technologies to ensure that only authorized people have access to technology resources, information, or services. Identity and access management systems are continuously evolving to improve security and the user experience.
Problems With Current Digital Identity Management Systems
A digital identity is the total information about an individual or organization that exists online. Data that forms a digital identity includes usernames, buying history, ID number, and search history. Almost all of our digital identities are connected through devices, services, and apps that have dominantly used centralized and federated identity systems.
As organizations collect sensitive information about users and store them, this can create business risks with increasing privacy regulations around the world like the General Data Protection Regulation (GDPR) in the EU and the California Consumer Privacy Act (CCPA). GDPR is the toughest privacy and security law in the world that applies to any organizations outside of the EU that collect data from people in the EU.
Risk of Data Breaches With Centralized and Federated Identity Management Systems
Centralized identity management is when a single authority collects and stores user data. Federated identity management allows authorized users to access multiple applications and domains with a single set of credentials such as when people use their Google or Facebook account to sign into apps and websites. A federated identity system is also referred to as single sign-on (SSO).
One big downside of centralized and federated identity systems is that people’s information is more vulnerable to data breaches, including identity theft. Because so much user data is kept in one place, hackers could potentially access a large amount of information. In recent years, personally identifiable information (PII) has been the most common type of breach representing 97% of all breaches. Centralized systems also create a single point of failure.
While federated systems make logging in easier, the risk is if the password gets stolen, all of the other sites you use with a single sign-on account could get exposed.
Bad User Experience Managing Many Login Accounts
Another problem with centralized identity systems is every time someone signs up to a new website or app, they have to create another account and password. This results in more personal data being added online and more information to manage. The average person has 100 passwords and as they make more accounts, this increases their security risk.
Expensive and Time-Consuming Know Your Customer (KYC)/Anti-Money Laundering (AML) Checks
Know Your Customer onboarding processes involve the verifying organization, user, and third parties. Anti-Money Laundering processes are a fundamental requirement for financial institutions and almost every country in the world has strict AML regulations. Global spending on AML/KYC data and services is projected to total $1.6 billion in 2022.
Conventional processes to verify a user’s identity, documents, and background are often manual, time-consuming, and expensive for all of the stakeholders, particularly the KYC company that requires more resources to process the needs of their clients in diverse industries quickly including banks, healthcare providers, and immigration officials.
Key statistics about identity fraud:
- Identity theft has resulted in billions of dollars in financial losses each year.
- Children are unfortunately increasingly becoming the victims of identity fraud. Over 1 million children were ID theft victims in 2020, particularly for Social Security Number misuse and credit card fraud.
- Government benefits fraud is the leading type of identity theft in 2021 with credit card fraud being a close second.
- 87% of consumers have left personal information exposed online while accessing emails, bank accounts, or financial information.
Lack of Data Control and Ownership
With the dominant centralized and federated identity systems, it’s often impossible for people to have control and ownership over their personally identifiable information (PII). They have no idea if their data has been shared without their consent and where their PII has been stored.
Inaccessibility to Official Identity
Around one billion people have no way to prove their identity and about 1.7 billion adults are unbanked around the world. Not having an identity results in not being able to enrol in school, get jobs, receive financial services, or access government services among other problems.
How Is Blockchain Used in Identity Management?
Blockchain technology makes information about identity verifiable and auditable in seconds. Before diving into how blockchain is used in identity management, it’s important to first understand the key features of blockchain and how it works.
What Is a Blockchain?
A blockchain is a system of recording information on a shared database where every computer in the blockchain network has a copy of the digital ledger of transactions. A ledger is a digital record of bookkeeping entries. Blockchain makes it very difficult for someone to change, hack, or cheat the system because records can’t be changed retroactively without changing the subsequent blocks of information.
Key Features of a Blockchain
These are the key advantages of blockchain technology:
Decentralized, shared database (distributed ledger)
Unlike a centralized system where only one or a limited group of people can see, alter, and access records of information, with blockchain technology, every computer in the network has a copy of the ledger.
To add a transaction, every computer needs to check its validity. When there’s a majority that thinks the transaction is valid, it is added to the ledger which creates more transparency and makes this record-keeping system corruption-free. Without the consent from the majority of computers, no one can add any transaction blocks to the ledger. Decentralized data storage also means there will be no single point of failure.
Once the transaction blocks get added on the ledger, information on the blockchain can’t be changed, backdated, or altered by anyone which creates a permanent, unalterable network. This maintains the integrity and accuracy of the data while establishing and sustaining trust between stakeholders.
The blockchain system processes and stores transactions with the use of cryptography, an area of computer science that focuses on transforming data so that it can’t be accessed by unauthorized users. Personally identifiable information and credential details are not stored on the blockchain itself. Rather, the issuer’s public cryptographic key is stored on the blockchain so that anyone can verify if a Verifiable Credential was really issued by them.
Transparent and auditable data
Everyone in the blockchain network can trace the recorded transactions and the data is verified. There is an auditable trail of data.
Enables privacy and consent
There is growing regulation around the world to provide more privacy protection for citizens, including the rule that data can’t be shared without a user’s explicit consent. Using an identity management system that leverages blockchain tech, only the users store their data and only they can decide whether to share it or not. Also, blockchain technology can enable data to be verified without necessarily revealing personally identifiable details or more information than is necessary for a purpose. For example, someone could confirm they are over 19 years old without revealing their birth date.
Consensus maintains identity data integrity
A blockchain uses consensus mechanisms to help keep inaccurate or potentially fraudulent information transactions off the blockchain. Consensus mechanisms are the systems of agreement that determine the validity of transactions and governance of the blockchain.
The Difference Between Public Permissionless, Private, and Public Permissioned Blockchain Networks
These are the main types of blockchains:
- Public permissionless
- Public permissioned (hybrid)
Public Permissionless Blockchain
A public permissionless blockchain network is completely open and anyone can join and participate in the core activities of the network. Anyone can read, write, and audit the network to help maintain the shared ledger and execute the consensus protocol. A public network operates with incentives to encourage new participants to join and the more participants there are, the safer the blockchain is from data breaches and other cybersecurity issues. Dock is a public permissionless blockchain. By integrating public blockchains in operations, anyone will be able to read the data that doesn’t contain personally identifiable information while creating an auditable trail.
For example, our partner BurstIQ has integrated Dock’s Verifiable Credential technology into their LifeGraph ecosystem to help their clients maintain data integrity as information is exchanged between parties within and outside of their system. LifeGraph gives businesses a secure way to manage sensitive data and comply with people's data rights while giving people ownership and control over their personal information.
Whenever an action is taken, an audit record can be written to the ledger referencing an externally stored VC that contains the relevant details about the individual. That VC uses cryptography to ensure that its contents haven't been tampered with and was signed by the stated issuer based on publicly available keys. By doing this, an immutable audit record is recorded on the blockchain while the private user information is stored securely elsewhere.
In contrast, private blockchains control who is allowed to participate in the network and someone needs to be invited and validated first. Only select users might maintain the shared ledger and the owner or operator has the right to override, edit, or delete the necessary entries on the blockchain as required or as they see fit. Private blockchains prioritize efficiency and immutability over protecting user identities and promoting transparency. These features may be used in payroll, finances, and accounting.
The downsides of private blockchains is that a few powerful computers in the network are responsible for validating transactions which can create a lack of trust. Because there are a fewer number of users on a private blockchain, it’s easier for a single entity to gain control and use it for fraudulent purposes and making it more susceptible to data breaches.
Public Permissioned Blockchain (aka hybrid blockchain)
Public permissioned blockchains have a mix of characteristics of private and public permissionless blockchains. With this type of blockchain, blockchain members can decide who can participate in the blockchain or which transactions are made public. Basically, some processes are kept private while others are public. While the blockchain isn’t closed to the public, it mainly has prerequisites for users.
Organizations can control who has access to specific data stored on the blockchain and which data will be publicly accessible. Usually, even though some types of transactions and records aren’t made public, they can be verified when needed. This type of blockchain isn’t completely transparent because information can be shielded and it can be hard to upgrade because there is no incentive for users to participate or contribute to the network.
The Role of Decentralized Identifiers and Verifiable Credentials In Blockchain Identity Management
Decentralized Identifiers (DIDs)
Currently we dominantly use emails, passwords, usernames and other information to authenticate our identity online. But these are the downsides of logging in with these kinds of digital identifiers:
- They can be taken away anytime by the provider and remove your access to their services, site, or app.
- You don’t own and control these identifiers. Your information associated with them can be shared to other parties without your knowledge and track you online to show you ads.
- They are often stored on centralized systems that can be vulnerable to data breaches and cyber attacks.
A solution to these problems is the use of decentralized identifiers (DIDs) to log in and access websites, apps, and services. A decentralized identifier is a globally unique identifier made up of a string of letters and numbers that is stored and managed in a digital wallet. DIDs can be assigned to a person, company, or object.
Here is an example of a Dock DID:
Benefits of Decentralized Identifiers
- Organizations and individuals have full control and ownership over their DIDs and no party can take them away
- Enable the owner to prove cryptographic control of them
- Don’t contain personal data or wallet information
- Enables private and secure connections between two parties and can be verified anywhere at any time
Someone can create as many DIDs as they want for different relationships and interactions.
- DID 1: For a gaming platform
- DID 2: Online banking
- DID 3: Identity cards
- DID 4: Ordering on online stores
Verifiable Credentials (VCs)
Verifiable Credentials are a digital, cryptographically secured version of both paper and digital credentials that people can present to organizations that need them for verification. Identity documents like passports, IDs issued by the government, and driver’s licenses can be issued as Verifiable Credentials.
Each DID can have multiple Verifiable Credentials associated with them that are digitally (cryptographically) signed by their issuers like a government driver’s licensing department. DID owners store the credentials themselves on their phones and don’t have to rely on a single provider like Facebook or Google.
Here is how blockchain identity management works:
Benefits of Blockchain Identity Management for Organizations
Benefits of Blockchain Identity Management for Users
Consent to share identity data
Identity data can’t be shared without people’s explicit consent. Every time a request for data is made, the user will be prompted to give permission to show a credential. A blockchain-based identity system enables data minimization meaning that people can have the option to only share parts of a credential needed by the verifier such as being able to show the city they live in without revealing their whole address. Another privacy feature that can be implemented with blockchain is called Zero-Knowledge Proofs where people can prove claims without revealing the data at all. For example, someone can confirm that they are at least 18 years old to buy alcohol without needing to reveal their birth date.
Secure global ID
The personally identifiable information associated with each DID is securely encrypted and usually stored in a user’s mobile phone. The DID can be used to share with any third party to authenticate themselves through the blockchain.
Complete data ownership and control
Individuals who are accessing sites and apps have full control and ownership of their digital identity. No party can take their DID away or get access to their data without someone’s consent.
Decentralized data storage
Unlike centralized storage systems, identity data and Verifiable Credentials are stored on people’s individual devices and not even on the blockchain itself. This makes it harder for bad actors to access a lot of personal information at once. With centralized storage systems, a hacker could obtain 20 million accounts at once. But with decentralized storage, the hacker would have to hack 20 million devices.
Universally accessible system
Anyone in the world can be part of the network with a digital identity as long as they have at least a mobile phone.
Easier and faster blockchain identity verification
When someone’s DID is stored on the blockchain, it can be used for a variety of applications including mandatory Know Your Customer (KYC) requirements for financial institutions. People’s driver’s license, passport, and other necessary credentials for verification can be associated with their DID. Once people complete the KYC onboarding process the first time, they could be issued a VC confirming that KYC which could potentially be reused for other verification processes. This way, subsequent companies wouldn't have to do an expensive KYC processes because they can trust the KYC VC.
The faster verification process is enabled by the use of cryptography and the instant verification of the issuer such as a driver’s licensing organization or bank. A verifier can check the blockchain to see the Issuer’s public cryptographic key and confirm if the VC was really issued by them. There is no need to directly contact the issuer.
Improved online user experience
People can simply log in to websites and apps efficiently with a DID without having to manage a growing number of passwords and accounts. People can store their DID on a blockchain network just once and internet-based service providers can access that for user authentication purposes. Dock’s Web3 ID is one example of a blockchain-based authentication and authorization system that allows organizations to verify users by requesting private data from their identity wallet apps.
Reduces the need for paper-based identity management
Paper credentials are easy to lose, destroy, and forge. If someone loses a physical document, they will have to go to an office and undergo a time-consuming process to get another proof of ID or digital document. In addition to being able to be reissued more efficiently than physical documents, documents issued as digital Verifiable Credentials are harder to misplace and fake.
Blockchain Identity Management Use Cases
There are a variety of use cases that are currently implementing blockchain identity management and potential applications are continuously in development.
Blockchain in healthcare
Blockchain for employee verification, proving skill development, and IDs
Blockchain identity management in supply chain
Government-issued blockchain identities and licensing services
Licenses and training certifications as Verifiable Credentials
Blockchain identity data management
Online services integrating blockchain technology that helps organizations comply with the GDPR requirement of data minimization
How blockchain can impact financial services
Blockchain in education
Blockchain identity management for Web3 sites
Why Personally Identifiable Information Should Never Be Stored on a Blockchain
Once information is added to a blockchain, it can never be completely deleted or altered, which is why it is crucial to never add personally identifiable information on a blockchain. Doing so can potentially lead to issues with data compliance and privacy laws such as GDPR's "right to be forgotten.” Hypothetically, if for example in 10 years if the unlikely event that a hacker cracked the encryption, he would be able to access all of the data.
With Dock, people have the option to store a registry of DIDs that don’t contain personally identifiable information and their associated Verifiable Credentials are stored in a user’s wallet and not on the blockchain.
The Future Blockchain Identity Management
A report by Market Research Future says that the blockchain identity market valuation will reach 17.81 billion by 2030 with a compound annual growth rate at 56.60% between 2022 to 2030. The market expansion is predicted to be helped through the expansion of governmental initiatives for blockchain technology development in both developed and emerging countries.
Right now, North America has the highest market share in the blockchain identity management market largely because of the continent’s highly developed infrastructure and technological breakthroughs. A growing number of merchants are looking for ways to enhance data security.
Some of the few drivers for this growth is the increasing need for digitization in a variety of industries including manufacturing, healthcare, and retail. The increasing problem of data breaches and cyber attacks can be effectively addressed with blockchain identity management solutions.
Identity and access management is the framework of processes, policies, and technologies to ensure that only authorized people have access to technology resources, information, or services.
The problems with conventional identity management systems include:
- The risk of data breaches
- A bad user experience with people having to manage so many login accounts
- Expensive verification processes
- Identity theft
- Lack of data ownership and control
- Inaccessibility to identity
Blockchain identity management technology can effectively solve these problems and has these benefits:
- Provide more data security
- Enable faster verification
- Reducing costs
- Prevent identity fraud
- Create an auditable trail of records
- Facilitating legal data compliance
- Creating automated processes
- Increasing accessibility to identity
- Blockchain and Health Care: BurstIQ Use Cases
- How to Prevent Certificate Fraud
- How to Prevent Supply Chain Fraud
- Digital Credentials
- Decentralized Identity
Dock is a Verifiable Credentials company that provides Dock Certs, a user-friendly, no-code platform, and developer solutions that enable organizations to issue, manage and verify fraud-proof credentials efficiently, securely, and at a lower cost. Dock enables organizations and individuals to create and share verified data.