Unleashing the Potential of Blockchain in Digital Identity Verification and Management

chirag July 12, 2024
blockchain for digital identity

Digital identity is how the internet uniquely identifies us. It could be our social media credentials, an order ID against the Amazon order, or our email addresses. But what happens when someone takes on our identity with malicious intent?

It’s more common than we believe. In the US alone, around 1 in 3 Americans have experienced identity theft, and according to the FBI, over 100,000 identity theft and personal data breaches occur every year.

The US Government’s Plan around Digital Identity Protection

In developing nations with small economies, experimenting with and implementing blockchain solutions for digital identity, also known as Self-Sovereign Identity (SSI) is easier since the scale of implementation is small. It was believed, however, that the same won’t work for the US or EU.

Proving the assumption wrong, The U.S. Senate Homeland Security and Governmental Affairs Committee recently passed a bill, the ‘Improving Digital Identity Act’, which is soon to move to the full Senate for debate. When the bill is passed, a task force – Improving Digital Identity Task Force – will be built to ensure citizens’ security and privacy and support “reliable, interoperable digital identity verification in the public and private sectors,”.

Since the goal of the act is to guarantee users’ data security and privacy, we are positive that it would include the implementation of emerging technologies, like biometric technology, artificial intelligence, or blockchain for digital identity verification.

The situation we’re finding ourselves in on the front of digital identity raises questions about what is lacking in the current system, leading to a situation where no one is safe from identity theft.

Protect your users by embracing blockchain digital identity solutions

What are the Problems in Current Digital Identity?

Though often unnoticed by users who have accepted them, the shortcomings in legacy digital identity systems are both harmful and omnipresent. Even after being a critical element in every software that the user relies on for their everyday operations, nearly every stage – data collection, storage, and usage of data – is filled with privacy, security, and some ethical concerns.

Problems Associated with Current Digital Identity

Centralized Data Management Systems

Centralized data management is when a single authority gathers and stores users’ data. While it doesn’t look so bad on a high level, let us look at the realistic ground-level scenario.

There might be platforms that have more strict fill-up criteria than others, for example, a social media site might only need an email ID to sign users in but a banking or income tax application would require a complete financial or personal history before they provide you access to their services and portal.

Because of this, the users are forced to provide similar information (to different extents) across multiple platforms. With each platform having its database, each storing critical user information, the attack surface on a user’s data dramatically increases.

Expensive and Time-Consuming KYC/AML

Know Your Customers and Anti Money Laundering laws are considered highly significant by global regulation authorities. It was introduced in 2001 as an element of the Patriot Act. The root idea here is that businesses need to know their customers (i.e., verify identity, ensure they are real, and confirm that they are not on prohibited lists).

These policies help create and verify customers’ identities by using independent and reliable sources of information. On the other side though, these procedures can be extremely manual, complex and expensive for the entities involved in implementing them. Fenergo’s research finds that large FIs spend up to $30 million annually in guaranteeing adherence to the KYC and AML checks.

[Also Read: Blockchain technology for KYC: The Solution to Inefficient KYC Process]

Lack of Data Ownership and Control

The problem with having your data stored in multiple places is that you lose control over it. Every time you press the button saying, “remember my credentials” or something in the same tune, while there is a lot of convenience involved with not having to remember the credentials, there is also the issue of lost data ownership.

When you save or store data on the internet platforms, they use it to give you a better browsing experience – all good, until you realize that you don’t want to see personalized ads which feel too intrusive. Traditional or centralized identification systems don’t give users a way out if they don’t want companies to use their data for personal scale-ups.

Where Does Blockchain for Identity Management Fit in the System?

Driven by these obvious flaws, the digital identity management domain is ripe for blockchain’s entry. By combining digital identity and blockchain, a majority of these and other issues can be resolved while a range of use cases can be introduced.

The key elements of an identity as a service blockchain would comprise the users’ ability to monetize the data they create when browsing the digital platforms and then even track how the information is being utilized. It would also give them the ability to consciously and easily share their digital identity information; and keep their data secure on the way.

Here’s how digital identity on blockchain works today:

    • Zero-knowledge proof – It is a mathematical model that makes it possible for a party to prove they have insights about something without actually revealing any details about the thing.
  • Embedded encryption – With digital identities on blockchain, users are able to benefit from émbedded encryption. It entails data is encrypted directly on the blockchain, making it impossible for other parties to read or view it in the absence of cryptographic keys.
  • Revocation – Blockchain identity technology gives users a choice in terms of the amount of data they wish to make public. They are also given the right to revoke the access whenever they decide.

There are several other unique use cases towards achieving these objectives and making identity management blockchain mainstream. Before diving into them, let us look into what makes it possible.

Components of Blockchain for Digital Identity Management

Expanding the scope of blockchain for identity verification would require businesses to gather a complete understanding of how the different decentralization-focused elements come together.

Blockchain for Digital Identity Management: Essential Components

Decentralized Identity

In sharp contrast to the traditional models, the decentralized approach gives control in users’ hands. It enables users to manage the outcome of their identity-sharing process – deciding what information to share with whom and for what duration.

A blockchain-based identity model, in addition to being completely transparent and immutable, also removes the reliance on third-party intermediaries, thus eliminating the potential risks and vulnerabilities linked with centralized architectures.

Self-Sovereign Identity

Self-sovereign identity is one of the key aspects of identity management blockchain. The model suggests that the sole authority to control the identity should remain with the users. It enables users to verify, manage, and modify their data without depending on any centralized authority or third-party intermediary.

With the help of the blockchain identity management approach, the risk of data breaches gets eliminated since they now decide whom to share their information and to what extent.

Identity Verification Mechanisms

These models work towards the verification of digital identity authenticity. Powered by the principles of cryptography, the mechanisms comprise generating keys for every identity, guaranteeing secure interaction and access.

In a typical blockchain identity verification setup, the validation process makes use of consensus algorithms through which it is ensured that no single entity controls the verification process, thus enhancing the system’s trustworthiness.

Powered by the components, several benefits of blockchain for identity management have been witnessed by the identity-reliant industries.

You may like reading: Facial recognition system development – The why’s and how’s

Benefits of Blockchain Identity Management

Blockchain digital identity solutions come with several benefits for businesses, governments, and individuals. Let us explore some of the top ones.

Advantages of Blockchain-Based Identity Management

Identity Syncing

Identity synchronization is a primary blockchain offering. It allows users to share their identity/credentials across multiple platforms without the need for different logins and passwords, thereby lowering the risk of account hacks and collisions. All you have to do is control your private keys, this way, no centralized service provider owns your identity: instead, it is 100% yours. This model is a lot more convenient than handling different profiles across platforms.

Zero Redundancy

With blockchain, digital identity can be measured against the previous versions of themselves. So, every time you edit a credential the changes can be traced to you – this becomes possible through the immutable nature of blockchain, which makes it impossible to remove the recorded data until you (the author) allow it. The benefit makes digital identity blockchain a preferred solution for non-repudiable timestamping.

Sybil-ing Identification

Blockchain for identity and access management gives no incentive to users to create multiple identities. Moreover, a credential system can also be built where the identity’s past endorsements are recorded in every subsequent endorsement. This implies that as long as the original credentials are verified – maybe through security stages – all future actions will have been marked with your identity.

Proof of Existence

Blockchain offers authentic proof of existence by handling transactions linked with the associated document’s hash. This offers non-repudiation, which gets strengthened further by adding a digital signature built with the originator’s identity private key. Identity management with blockchain offers the following benefits over the current solutions:

  • It is permanent
  • It is public
  • Control is centralized

Cost and Efficiency Optimization

Blockchain digital identity comes with great efficiency – both in terms of effectiveness and costs. By removing intermediaries, streamlining verification, and through reusable digital identities, the operational costs get significantly lowered. Moreover, the amount of resources that the IT infrastructure needs to manage also gets minimized, thus lowering the instances of fraud.

Enhanced Security

By giving users complete control over their data, blockchain identity solutions significantly lower the risk of data breaches which is otherwise very common in centralized systems. The cryptographic measure along with the self-sovereign identity model adds a layer of security in the identity mechanisms. Additionally, blockchain’s decentralized nature removes a single point of failure so in any event of a security breach, only a portion of the data comes at risk instead of the entire database.

KYC Revolutionized

Blockchain digital identity solutions can revolutionize traditional, expensive, and slow processes. By using decentralization-based identities, businesses can verify customer information cost-effectively and easily. All they have to do is read the blockchain where users have shared their data for public access. These identities are not just secure but are also reusable around multiple platforms, removing the need for customers to perform the same KYC processes again.

Blockchain identity technology benefits

Up until this point, we have covered many facets of blockchain identity management but it has mostly been textual or rather high-level. For an entrepreneur, it is important to understand what the benefits would translate into in the real world.

Use Cases of Blockchain in Digital Identity Management

Blockchain-powered digital identities can transform multiple industries, right from traditional sectors including healthcare, financial services, and government offices, to comparatively new domains such as online marketplaces.

Applications of Digital Identity Management Across Industries


Blockchain identity solutions enable the secure transfer of medical records, bettering privacy and streamlining healthcare offerings. With decentralized identifiers, patients control their health data, giving access to healthcare providers as and when needed – all this while ensuring privacy and security of sensitive information.

[Also Read: How Blockchain Is Revolutionizing Healthcare]

Financial Services

In the financial sector, digital identity management using blockchain has shown the biggest impact. It can facilitate secure and real-time transactions, lowering identity theft and fraud. By using blockchain technology for identity verification, financial products can not just shorten customer onboarding processes but also streamline compliance processes, and improve the overall trust and security in the financial space.

[Also Read: Blockchain in Fintech: A Catalyst for Disruption in Finance World]

Government Services

Blockchain based identity can streamline users’ access to government services, easing tasks like voting and public benefits access. By using blockchain’s security and transparency features, governments can embed trust, lower their administrative burdens, and ensure the integrity of citizen information.

Decentralization also solves one of the biggest challenges governments face – data redundancy. With blockchain, every time a user updates their identity data it automatically gets reflected to all the parties who can read their information.

[Also Read: What Are the Benefits of Blockchain for Government Services?]


Blockchain identity verification can be used in the retail or eCommerce sector to establish proof of authenticity, ensuring compliance with industry-level regulations. By applying blockchain-based digital identities, businesses can enhance trust and security in online transactions, lowering fraud and offering a seamless customer experience.

[Also Read: How Can Blockchain Make B2B Retail More Profitable?]

These are only surface-level use cases of blockchain for digital identity, the entirety of the scope is yet to be explored by the digital space. However, if you came to us, a blockchain software development company trusted by brands like TaxiCoin, CoFi, MyMetaFi, etc. and asked for a walkthrough of a decentralized identifier, here’s what we would share –

Basic User Flow of a Digital Identity Blockchain

Basic User Flow of a Digital Identity Blockchain

In the current user flow, the distributed nature of blockchain ensures that there’s no single point of failure, making it more resilient to hacks or data breaches. Additionally, cryptography ensures data security, with private keys enabling users to securely access and manage their digital identities.

Please note that this is a very basic user flow describing how blockchain for digital identity would work when a solution is built around it. We have worked on self-sovereign identity-backed decentralized identifier solutions encompassing smart contracts and cryptocurrency while solving several critical challenges like –

  • Probability of threat actors creating a new branch that could overwrite and reverse all of the transactions on the public blockchain.
  • Trust mapping physical identity with digital identity.
  • Complex account recovery mechanisms

The blockchain identity solutions you have envisioned might need an entirely other user flow or challenges identification than the ones mentioned here. The best way to know would be by talking to our blockchain experts. Get in touch with them today.


Q. How to use blockchain for identity management?

A. To use blockchain for identity management, one can implement a system where each individual’s identity information is stored as a unique digital record on the blockchain network. This information can include personal details encrypted to ensure privacy and security.

Through cryptographic techniques like hashing and digital signatures, users can maintain control over their identity data while still allowing authorized parties to verify its authenticity. Moreover, smart contracts can be employed to automate identity verification processes, enabling seamless interactions between individuals and organizations while reducing the risk of identity theft and fraud.

Q. What are some top blockchain for identity verification use cases?

A. Some top blockchain identity management use cases include:

  • Self-sovereign identity: Empowering individuals to have full control over their digital identities, allowing them to manage and share their personal information securely.
  • Know Your Customer verification: Streamlining the process of verifying customer identities for financial institutions and other regulated industries while ensuring data privacy and compliance.
  • Supply chain management: Enhancing transparency and traceability by securely recording and tracking identities of products and participants across the supply chain.
  • Healthcare records management: Safeguarding patient privacy and enabling seamless sharing of medical records among healthcare providers while maintaining data integrity.
  • Voting systems: Improving the integrity and security of voting processes by enabling secure and verifiable digital identities for voters, reducing the risk of fraud and manipulation.

Q. How does identity management with blockchain work?

A. Identity management with blockchain works by storing identity information securely on a decentralized ledger. Each individual’s identity data is encrypted and stored as a unique digital record on the blockchain network. Through cryptographic techniques like hashing and digital signatures, users maintain control over their identity data while allowing authorized parties to verify its authenticity.

Additionally, smart contracts can automate identity verification processes, ensuring secure and efficient interactions between individuals and organizations while reducing the risk of identity theft and fraud. The immutable nature of blockchain for digital identity management ensures that once information is recorded, it cannot be altered or tampered with, enhancing trust and transparency in identity management systems.

Blockchain Evangelist
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