December 24, 2024
The rise of digital identity management has transformed how we interact online, but it also brings challenges around security, privacy, and trust. Blockchain technology is emerging as a key pillar of these solutions, offering decentralized, transparent, and secure frameworks for identity management.
We sit down with Sebastian Rodriguez, Head of Product at Privado ID, who explains the role of blockchain in digital identity solutions.
Sovereign Self-Identity: A User-Centered Model
Self-sovereign identities (SSI) empower users to control their data and ensure privacy. By decentralizing data management, blockchain eliminates reliance on centralized institutions, creating systems where trust is built into the technology itself.
The self-sovereign identity model is at the heart of blockchain-based digital identity systems. Unlike traditional systems, where organizations store and control user data, SSI puts users at the center.
The blockchain acts as a verifiable repository of credentials, allowing users to securely manage their identities. Rodriguez explains that this approach offers crucial benefits such as de-credentialing, key rotation, and trust records.
“Blockchain is one of the many components that play a role in self-sovereign identity solutions. These types of solutions put the user at the center of their data exchange and are driven by consent. That’s what really helps improve the security and privacy of the user – being the true owner of their data,” Rodriguez said in an interview with BeInCrypto.
This ensures that users can verify their credentials without revealing sensitive information. Combined with smart contracts, this method can enable trustless identity verification, removing reliance on central authorities.
This allows users to validate credentials while issuers can revoke them if necessary. According to Juniper research, automating identity checks and money laundering, linked to blockchain for digital identity verification, could enable savings of up to 50% on current costs for banks within a few years.
By separating data storage from verification, blockchain ensures security while maintaining flexibility for use across platforms. This model is particularly effective in industries such as finance, healthcare, and governance, where trust and compliance are paramount.
Despite its promise, blockchain-based digital identity systems face critical limitations in adoption. One challenge is ensuring access for users who are not familiar with cryptocurrencies. Rodriguez emphasizes the importance of keeping the complex operations of blockchains hidden from users.
“In general, it is better to hide blockchain from end users if we are targeting mass adoption outside the crypto community – we are competing with the convenience of Google and Apple. Convenience has won the battle against privacy time and time again – to win that battle we must accept that user experience is key,” Rodriguez said.
To address these barriers, PrivadoID uses a “light blockchain” approach. This approach minimizes user interactions with the blockchain, with an emphasis on seamless integration across networks. Cross-chain compatibility is another critical feature.
“Our system verifies credentials without the need for blockchain transactions, making it independent of a specific chain,” Rodriguez said.
Reusable Know Your Customer (KYC) credits are changing financial services. Users complete KYC verification once, and store the credits in decentralized tokens for use across multiple platforms.
This reduces costs for organizations while enhancing user privacy. Additionally, blockchain-based age verification systems are being adopted in online services and games, ensuring compliance without exposing sensitive user data.
The Future of Blockchain in Digital Identity
Digital identity developments are set to redefine trust and security online. Rodriguez believes blockchain will play a central role in this transformation.
“Identity is bigger and broader than blockchain — and its evolution in the coming years will impact every aspect of our digital lives,” Rodriguez said. “We’ve lived without strong, trusted identities for years, using our social accounts as surrogates for our identities — but there’s a reason you can’t use an email address to vote or buy a house. AI will push the boundaries of our trust and sense of ownership to the point where trusted identities become a necessity. In 10 years, we will remember the current state of the internet as the ‘wild’ days, in the same way we remember the 1990s as the ‘naive’ years.”
The global digital identity solutions market size is expected to grow from USD 42 billion in 2024 to USD 133 billion by 2030.
As digital identity systems mature, they must balance privacy, security and ease of use. Rodriguez stresses that user experience will be critical to widespread adoption.
Blockchain’s ability to provide transparency and security while respecting user privacy makes it a game-changer in digital identity. With more innovations on the way, blockchain-based identity systems are poised to transform how we interact and transact online.
