How Blockchain Is Used in Digital Identity Management

A person filling data to complete a digital profile on a phone

The big problem in the sharing economy is trust. People want to know who they are getting into a business relationship with and whether their information is safe. This is why blockchain technology is emerging as a fix for managing identity and hence enhancing trust.

Digital identity and blockchain technology are rapidly becoming mainstream topics for discussion. The relevance of blockchain to digital identity becomes immediately apparent when we bear in mind the importance of secure records and transactions in a virtual world that is increasingly dependent on a high degree of privacy, safety, and trust.

The global market for blockchain identity management is expected to reach $11.46 billion by 2026, registering a CAGR of 79.2% from 2019 to 2026.

In this article, we shall try to understand how blockchain can be used in digital identity management and explain why the technology can play a key role in ensuring privacy, security, and trust.

What is digital identity management?

Digital identity management is used to determine the uniqueness of a user — that a user is who they say they are. Digital identity management is broadly defined as the process that identifies and authenticates a subject or user, both online and offline, managing a digital representation of identity which traditionally has depended on a centralized authority.

Digital identity management allows for trustless interaction between users and the decentralized platform on which they operate. It creates an auditable trail that can be used in legal or regulatory proceedings, should fraud or other crimes be discovered at a later date.

With digital identity management, it’s possible to solve many problems faced by centralized authorities today. These include high transaction costs due to slow processing times, the need to rely on 3rd party processors whose interests do not always coincide with those of their customers, and outright fraudulent transactions.

Current pain points in identity management

A person accessing a profile using fingerprints

There are several challenges in current iterations of identity management, with the most widespread being:


Most current account binding is done through a singular centralized entity. This means there is only one entry point, and if the directory is compromised, gets shut down, or goes rogue, then every single user has to go through a costly recovery process. This includes all modern web applications since they are almost always hosted on 3rd party servers that do not belong to the application provider. You will probably recall Facebook recently blocking access for its users.

Ownership/control issues

It goes without saying that full ownership of a profile is crucial to the user. Yet, most systems have little or no ownership features built into them — they were designed primarily for reference lookups (nobody really owns their FB profile).


Many systems require users to create accounts on multiple systems in order to access their services — most social networks replicate information across servers so that no matter where you log in, your data will still be available. This creates backup concerns, because if one server gets compromised or goes offline then the data is no longer valid/accessible from the network at large.

Timestamping issues

If there were an optimal timestamping method for identifying digital objects, many of the ownership issues could be tackled. But this has not yet been truly solved. For example, in many systems, you can edit your profile picture, with the most common method involving the user uploading a new picture then ‘replacing’ the old one.

In reality, though, there are two pictures existing in parallel — and this ambiguity creates issues around who controls/owns the media in question. If you were forced to look at two devices and decide which picture is real and which isn’t, how would you answer?

Sybil resistance

All services currently have weak points concerning users creating multiple identities within them. This is called identity Sybil-ing. If there were a robust solution for this, it would prevent mindless spamming across social networks.

What about blockchain technology?

Blockchain is represented as a shared and immutable ledger capable of facilitating the processes of recording transactions and tracking assets within a business network.

Blockchains grow continuously as new records are added in chronological order, each one linking to the next. The linked blocks form an unbroken chain, hence the name blockchain. Blockchain technology can also be used for storing any type of data in many other applications, such as digital voting systems or identity management.

There are two types of blockchain: private and public. In a public blockchain, anyone on the network can read, write, or validate transactions. Examples include Bitcoin and Ethereum.

The advantages of blockchain technology are closely associated with its decentralized nature. Each participant in the network can contribute to and benefit from it. The immutability and traceability of blockchain technology ensure it is almost impossible to make changes: this guarantees the integrity and efficiency of the data stored. What’s more, the security that blockchain technology provides makes it possible to store large amounts of data efficiently, reducing storage costs while maintaining a high level of security.

Introduce yourself to the full spectrum of our blockchain services

Overview of blockchain in identity management

A person demonstrating the security of the face identity mechanisms

Blockchain is shaping up to be an ideal fix for the inefficiencies in identity management and is one of the three pillars of a self-sovereign identity, which are Verifiable Credentials, Decentralised Identifiers, and a Distributed Ledger Technology, correspondingly. These three protocols can help deal with the most pressing issues and provide a positive, global solution.

Verifiable Credentials

This protocol puts users in control of their own digital identities and empowers them with the ability to have their reputation precede them across systems/networks. It replaces passwords as a proof of identity method with cryptographic signatures generated from asymmetric keys derived from user entropy such as fingerprint scans and voice samples.

Verifiable credentials protocol also allows a user to select an endorsement key that builds up a reputation for that identity on each system. You no longer need to maintain multiple profiles across numerous social networks: one profile across all platforms will be enough.

Decentralized Identifiers

Decentralized identifiers are regarded as unique and personal identifiers, entirely controlled by the identity owner. This type of protocol enables a public method of unique ID/address resolution. As well as this, it is independent of any centralized authorities and identity providers.


Blockchain technology provides decentralized consensus through blockchains of time-stamped transactions. At its most basic level, it allows users to agree on when transactions occurred and then ensures all parties adhere to their agreements.

Check out top blockchain projects, platforms, and companies in 2021

How blockchain is used in identity management

Blockchain is capable of addressing the issues posed by identity management. Specifically, blockchain can solve inefficiencies in the following ways:

  • Providing identity synchronization
  • Eliminating redundancy issues
  • Eliminating identity Sybil-ing
  • Providing proof-of-existence
  • Providing individual control to users

Let’s expand on these points.

Identity synchronization

Identity synchronization is a core feature of blockchain. It allows users to prove their identity across multiple systems without the need for passwords, thereby eliminating account hacks and collisions. If you control your private keys, then no longer does a service provider own your identity: instead, it is yours alone. This system is far more convenient than managing multiple profiles across disparate social networks.

Redundancy issues

With blockchain, digital objects can be checked against previous versions of themselves. So, in addition to the solution above, there would also be no confusion about the ownership of these objects, because all changes can easily be traced back to their initial author. It makes possible an ideal solution for non-repudiable timestamping.

Identity Sybil-ing

With blockchain, the aforementioned Verifiable Credentials Protocol can also be implemented, with the result that there is no incentive for users to create multiple identities. Moreover, a reputation system can be established in which identity’s past endorsements are recorded on each subsequent endorsement. So as long as your initial reputation is verified (perhaps by completing security tasks), then all future actions will have already been indelibly marked with your identity. One way of understanding this is to imagine each confirmation of a transaction as being similar to the proof provided by a fingerprint or iris scan.

Proof of existence

Blockchain provides an immutable public ledger for non-repudiable timestamping. You could argue that it was always possible to do this via blockchain from the very beginning. However, for this state of affairs to continue, it would require resources that are currently impractical to maintain.

Blockchain provides proof of existence by maintaining a transaction that is linked to the hash of an associated document. This offers non-repudiation, which can be further strengthened by adding a digital signature created with a private key of the originator’s identity.

A non-repudiable record of existence can be a useful tool for notarization purposes. It offers the following advantages over existing solutions:

  • It is permanent. The blockchain transaction and digital signature cannot be changed retroactively.
  • It is public. Anyone can view this proof to verify its validity, which is why it’s extremely important to use a private key that is secured and not known by anyone else.
  • Control is centralized. The blockchain transaction with the document hash could be written for any purpose into other contracts or for authorities that may require further action from the owner of the private key.

Take a peek at this intuitive blockchain-based document notarization solution

Individual control

With the advent of blockchain, we can finally claim individual control over our identities and reputations. No longer do we need to support central authorities who may censor, sell, or lose our personal information. Users now have something far better — decentralized entities where individuals truly matter.

How a decentralized identity works

A person with a magnifier examine a profile

When you go to a public library in your hometown, you don’t need an ID. But if you go into a bank or another institution that retains valuable information, having proper identification is critical to ensure that only an authorized person can access the details on the system.

Though online digital systems have been around for several decades now, establishing and verifying identities has proved a challenge. One of the main reasons is that the internet and digital identity systems aren’t built for privacy.

A decentralized identity is one that has been cryptographically secured throughout the blockchain so as to prevent it from being manipulated or changed without authorization. This makes it resistant to fraud and theft. A decentralized identity can be used for both individual and business identification purposes.

Because a decentralized identity is cryptographically secured, without proper authorization the information stored within its records cannot be forged or altered.

Digital Identity is created by using the DID to create a cryptographic key pair, sign it with the certificate authority, and then publish this information as an attestation on the blockchain.

To add attestations to a blockchain, you need to deploy code (written in Solidity) that includes certain rules about how the attestation should be created. This code is then used to generate new attestations every time they are required.

What is the function of a decentralized identifier?

A decentralized identifier (DID) is a technology designed for the secure management of digital identity. DIDs are issued on the public blockchain with strong protection and encryption so that only authorized applications or individuals can access information associated with those identifiers. It can be used as an alternative to existing forms of identity management and enables a person to have full control over their online ID, allowing them to easily manage their own digital persona rather than relinquish control to large social networks or other centralized entities.

Instead of relying on a centralized authority to verify identities, DIDs are issued by multiple parties and publicly recorded on the blockchain. This means that instead of a single operator like Facebook being responsible for verifying your identity, anyone can attest to who you are, from any device or location, at any time.

DIDs bring immediate benefits when it comes to authentication and signing into websites or applications without passwords, a process prone to security risks as well as user error (such as forgetting an ID/password combination). Instead of having multiple IDs for each network, app, or service they use, individuals can have one DID with validated identity claims, and use it to securely sign up for apps, social networks, and other services.

The existing methods of data protection

Three methods of data protection are zero-knowledge proofs, embedded encryption, and revocation. Zero-knowledge proofs allow for computation on sensitive data without revealing the actual values. Embedded encryption allows for control to be retained over access to information, while the revocation of data is handled by using a key system.

Let’s have a look at each method of data protection in detail.

Zero-knowledge proofs

One way to verify someone’s identity without knowing who they are is through the use of zero-knowledge proofs. These are mathematical methods that allow a party to prove they have knowledge about something without revealing any details about the thing itself.

Embedded encryption

With DIDs, users can take advantage of ’embedded encryption’. This means that data is encrypted directly within the blockchain and therefore cannot be observed by other parties. In order to read or write into a DID, an individual must use cryptographic keys that are embedded in their own device (such as a smartphone).


A person can also have complete control over how public their information is. They can choose to make certain data private or public and revoke it at any time without a central authority being able to do anything about it.

Find out more about this blockchain-powered digital document verification system with strong cryptography at its core

Aspects to consider before implementing blockchain in identity management

A person putting a mobile phone into a box symbolizing blockchain

Before implementing blockchain in identity management, you need to carefully consider aspects such as the location of your personal data, costs, and provider.

Location of your personal data

If you want your data stored in just one location, then there’s no better place to store it than on blockchain, where it cannot be altered or hacked. However, if you need more than just one place to store your data, then a better option for you might be to use a decentralized database system.


You should also give thought to how much it will cost to administer all your personal identities on the blockchain. The amount of money required for managing personal blockchain identity can vary depending on what kind of information you want and where you embed it. If you want only basic details such as name and date of birth, then the fees charged would be at the lower end. But if you add some more details like a driver’s license or passport, then it might be more expensive.


Finally, you need to work out whether you’re going to keep your data in each service provider separately or to instead store it in one place. Currently, although there are a number of different service providers, they all provide an interface for viewing our data in one place. This means that we can still see all our personal information across different services in one location.

Once you know all the pros and cons, you can decide which service provider will give you the best, most efficient features for your budget.

Bear in mind that blockchain is a new technology: there are limitations to ponder, but soon enough the technology will develop, clearing up any remaining difficulties.

The examples of blockchain digital identity use cases

Blockchain-based identity management has been rolled out in many different areas. Here are just some of them.

Asset management

Blockchain provides a ledger for managing assets and transactions through secure, transparent, and peer-to-peer (P2P) communication channels. By eliminating third-party trust or reliance on external parties such as banks, these systems have the potential to reduce costs while providing a permanent record of ownership.

Since blockchain technology enables someone to prove their identity without using any third party, it can provide a secure and trustworthy way to allow individuals to access or manage their assets. It also helps them to make transactions with asset providers directly.

The traditional methods of proving someone’s identity require them to rely on a credible third party such as the government or their bank. But blockchain technology makes it possible for someone to control and own their private key without being fingerprinted or verified by other parties’ databases.

In this article we have outlined everything you need to know about asset tokenization. Check it out!

Global payments

The use of digital currencies eliminates third parties in money transfers and improves transaction processing efficiency by spreading work over thousands of computers instead of one centralized authority. This can improve security by reducing fraud opportunities for cybercriminals. Also, it can bring big cost savings, thanks to the elimination of middlemen in transactions between different countries.

Blockchain digital identity is ideal for global payments since it can be used to validate and verify both parties in a transaction instantly, while also securely sharing data without dependence on a third party.

In addition, blockchain identity verification for peer-to-peer transactions is more secure and significantly more efficient than today’s system as it only requires the individual to have internet access and a digital wallet to make online payments.

As well as this, global remittances could be substantially improved by using blockchain digital identities in place of the current paper-based system of money transfer.


A healthcare worker discovering a digital identity profile

Blockchain identity management is useful in healthcare because it helps keep medical records in a secure and accessible location. Patients are more likely to be comfortable with their personal information being on the blockchain if they know that their privacy is protected. Also, hospitals can improve the way they store and access patient data.

A number of entities in the healthcare industry such as hospitals, doctors, and healthcare insurance providers are already using blockchain identity management to improve the way they operate.

The technology could also be used to create an online marketplace where patients can sell their medical data. This type of system would give patients a greater say in how their personal data is used.

Blockchain identity management may also make it easier for pharmaceutical companies to develop personalized medicine. The technology could help them track transactions related to drug verification, interactions between drugs, and other medical information.

See how blockchain is shaping up the healthcare industry


Blockchain identity management could help colleges and universities protect the personal information of their students, such as social security numbers and test scores. It would also give them a better way to share that data with alumni groups or other organizations.

Universities are using blockchain identity management to store documents securely online while maintaining an audit trail for transactions. Students and staff can use a blockchain-enhanced platform to access files from anywhere with an internet connection.

The technology also enables campuses to implement secure and verified student identification cards, which will improve the safety of students and protect their identities from being hijacked. University staff could also store their credentials on the blockchain, using it as proof of their skills and qualifications.


Blockchain identity management may make it easier for citizens to get the services they need from their local, state, and national governments. For example, government businesses could run more smoothly if blockchain identities are given to each of their staff members so that they can readily access records from multiple agencies.

Just as importantly, governments from all over the world are already implementing blockchain-enabled identity management in their numerous processes, thereby reducing the time, cost, and risk of managing confidential information.

Final thoughts

Decentralized identity management is a very new concept and it is bound to unleash its full potential in the future. Over the past few years, numerous use cases for blockchain digital identity management have been proposed, including those tailored to specific industries and sectors.

PixelPlex can help your company establish a viable blockchain solution for digital identity with full-stack blockchain development services. As a first step towards boosting your business efficiency, we suggest you contact us for a consultation today!


Kira Belova

Technical Writer

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