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Decentralized identity has long been seen as one of the most promising, and most complex, developments in the world of digital identity. It offers the potential for individuals to control and manage their own identities, moving beyond today's siloed systems. But as adoption begins to grow, fueled in part by new regulations like eIDAS 2.0, the question remains: Can decentralized identity truly deliver on its promise?
To explore this, Dock Labs CEO Nick Lambert recently hosted a discussion with two leading experts: Charles Walton, Principal at The Agosti Group and former SVP of Identity at Avast and Mastercard, and Martin Kuppinger, Principal Analyst and Founder of KuppingerCole. Both guests brought decades of experience in digital identity and security, along with sharp insights into where decentralized identity is headed.
In this article, we break down the key takeaways from their conversation, from the opportunities and barriers ahead to the business models that could make decentralized identity sustainable.
Current Outlook on Decentralized Identity
- Martin’s Perspective:
- Still highly optimistic about decentralized identity.
- Centralized identity systems have failed to ensure trust (due to breaches, mass hacks).
- Decentralized identity offers reduced risk at an individual level.
- Huge potential across sectors: travel, entertainment, hotels, ski passes, etc.
- Concerned about slow innovation and bureaucratic delays.
- Charlie’s Perspective:
- A fan of decentralized identity. It mirrors physical world behavior (wallets/cards).
- Adoption challenges due to working legacy systems.
- No immediate incentive for service providers to adopt new models yet.
- Calls out early wrong assumptions, missing the importance of a "fourth actor." (more on this below)
Use Cases and Potential Disruption Areas
- Adoption drivers:
- Mobile Driver's Licenses (mDLs).
- Age verification for online services.
- European digital identity (EUDI) initiatives.
- Decentralized identity can:
- Combat identity fraud.
- Reduce transactional friction.
- Enable better privacy protections (especially important with AI’s rise).
- Identity verification providers could either disrupt or be disrupted.
Critical Missing Piece: The "Fourth Actor" Concept
- Current models focus on issuers, holders, verifiers.
- Missing: a market maker or trust network entity that:
- Creates common standards and acceptance frameworks.
- Provides a recognizable trust mark (like Mastercard/Visa logos).
- Ensures privacy, security, compliance across participants.
- Aligns incentives between issuers, holders, verifiers, and businesses.
Challenges Holding Decentralized ID Back
- Awareness and Education Gap:
- Enterprises are often unaware of decentralized identity's possibilities.
- Too much technical jargon; stories not distilled into simple "elevator pitches."
- Fear of Disruption:
- Companies are afraid of breaking current workflows.
- Need to emphasize gradual enhancement, not immediate disruption.
- Scale and Usage:
- Current use cases are often too niche, government-focused.
- Need daily life use cases (shopping, social media, travel, content consumption).
Vision vs Practicality
- Martin advocates:
- Bigger, bolder vision: solving real-world pain points dramatically.
- Charlie highlights:
- Business realities: companies need short-term ROI to invest.
- Demand-side (users and businesses) must drive adoption, not just supply-side (tech providers).
Importance of a "Trust Layer" for AI Era
- Decentralized identity is key to:
- Countering AI-driven identity fraud (deepfakes, impersonations).
- Establishing content integrity and verifying origins (e.g., C2PA efforts).
- Enabling personal agents for travel, finance, work, etc.
Business Models and Monetization
- Identity services must be embedded into what users already pay for:
- E.g., travel, e-commerce, healthcare, finance.
- Potential revenue models:
- Free services subsidized by data sharing.
- Subscription models (small monthly fees for privacy-focused services).
- Important: Focus on value-add, not just identity storage (e.g., smart agents managing credentials).
Wallet Fragmentation: Threat or Opportunity?
- Fragmentation of wallet ecosystems is natural and inevitable:
- Users will want multiple wallets (personal, business, different devices).
- Wallets must serve the user, not control the user.
- Best practice:
- Credentials should be issued to holders, not wallets.
- Build for interoperability, multi-wallet environments.
Organizational Wallets
- Organizational wallets (e.g., EU Business Wallets) could:
- Drive large-scale adoption quickly through enterprises.
- Enable easier supply chain compliance, B2B identity management.
Regulatory Challenges
- Current regulatory issues:
- Over-regulation focused on enforcing specific technologies (bad).
- Regulations that prescribe human involvement when not necessary (e.g., Germany).
- Better approach:
- Focus on outcomes and assurance levels, not how they're achieved.
- Regulations should enable innovation, not stifle it.
Final Takeaways
- Decentralized identity is promising but progress is slow.
- Need for:
- Stronger demand-side adoption.
- Simple, visionary stories.
- Practical, incremental business models.
- Trust networks to coordinate efforts.
- Optimism remains high among the panelists, but work is required to build this future.
