Imagine this scenario: you recently filled out a job application online that requests your cell number for verification purposes. Next thing you know, you’re getting text messages from unsolicited recruiters. Or, even worse, imagine traveling out of the country and losing your smartphone. How are you supposed to prove your identity to international travel authorities? The answer is decentralized identity.

People are concerned about data privacy, and for good reason. 9 out of 10 American internet users agree that data privacy is important. 75% report feeling they could be vulnerable to attacks by cybercriminals. Paradoxically, only 64% use tools to protect their online privacy, while only 56% report feeling that they’re in control of their personal data.

Data privacy is just one issue settled by decentralized identity, which benefits users and API developers alike. If you’re new to the concept, we’ve put together a guide to answer the question, “What is decentralized identity?”

What is Decentralized Identity?

Decentralized identity is a form of identity management that gives users control over their digital identity without having to depend on a third party for verification. Examples of a user’s digital identity include usernames and passwords, search histories, official records like a social security number, or purchase history. A decentralized identity is also sometimes called a decentralized digital identity, decentralized ID, or decentralized identifier (DID).

Decentralized identifiers allow people and organizations to store verifiable credentials, which are identifiers issued by a trusted organization like a government, bank, or university. This removes the need to verify every single interaction with an API, as it already knows it can trust the issuing party.

In the traditional federated model of identity management, a user makes a request to a service or resource. The site then sends the query to a third party like Google or Facebook for verification. The federated identity management approach has a number of shortcomings. It limits the number of international users, for example, who might not use services like Facebook or Google. It also gives those organizations access to the user’s info, which can cause data privacy issues. Decentralized identity management removes all of these concerns.

How Decentralized Identity Management Works

Decentralized identity management stores a user’s personal data in a format that can’t be duplicated, tampered with, or stolen. In his presentation, How Decentralized Identity Changes Everything — Even Your APIs at Austin API Summit 2024, Curity’s founder Travis Spencer compared decentralized management to a government-issued ID.

These digital identifiers, sometimes called verifiable credentials, can be issued by an identity server and then stored in a digital repository known as a wallet. This identifier is then sent to a verifier, which authorizes the transaction as the issuer is trusted. With a decentralized ID, there’s no contact between the user and the resource. Only the wallet interacts with the final destination, adding an additional layer of abstraction that keeps both the user and data safe and secure.

Benefits of Decentralized Identity

Our lives grow increasingly online with each passing year. As part of this, our digital identity is increasingly mandatory in our day-to-day actions. Just take the fact that 67% of job applications were submitted online via a mobile device. Or that 88% of travelers checked into an airline electronically in 2023.

It’s increasingly common for sites to ask users to make an account. According to a recent report, the average user has over 100 online accounts. That means over 100 separate databases contain a user’s sensitive data. This could be a major problem with sensitive user data like scanned government IDs, social security numbers, or banking information. This is dangerous for users and recipients, who become less certain the data they receive is real.

Data privacy is one of the leading advantages of decentralized digital identity. Digital ID is integral for implementing self-sovereign identity (SSI). Decentralized identity management gives users greater control over what data is shared and with whom.

Implementing a decentralized digital identity also improves user experience (UX). It eliminates repetitive tasks like having to input their name, email address, or date of birth over and over again. Perhaps most importantly, digital identity management is portable. This ensures users can access their digital credentials even if they lose their physical device, like the international travel scenario we mentioned at the beginning. It also makes the user more autonomous and less reliant on a particular platform, which is increasingly important for digital creators.

Who Uses Decentralized Identity?

Digital creators aren’t the only ones who benefit from adopting decentralized digital identities. A wide range of different industries can benefit from adopting decentralized identity management, which is why over 57% of businesses are planning on implementing a decentralized identity solution. Nearly any industry you can think of is adopting decentralized ID into their organization.

Healthcare providers and banking institutions are some of the leading adopters of decentralized identity management, which is unsurprising considering the sensitivity of their data. Government institutions have been some of the most vocal proponents for digital ID, as well. The travel industry has passionately embraced decentralized ID, too, which not only enhances the traveler’s experience but also improves security.

Digital digital identities are even being adopted for a wide range of business applications, improving everything from supply chain and logistics to IoT and connected devices. As Spencer noted in his presentation above, decentralized IDs could even appear in surprising places, like heavy machinery operators or education. A decentralized wallet could be used to verify operating licenses or access to learning materials.

Decentralized Identity Use Cases

Let’s finish up our guide to decentralized identity with some examples of decentralized ID in action. A few decentralized identity use cases should help make the concept less abstract and more concrete, giving you a better idea of how you might integrate decentralized identity management into your organization.

To start, imagine a scenario where someone wants to use their phone or mobile device to make a payment without additional verification. A DID wallet stores all that data locally, preserving the user’s privacy while ensuring their financial transactions remain secure.

Another example of digital identity in action might be tracking an international shipment, guaranteeing every step of the process is secure. Digital identities are much harder to forge, and manual verification is time-consuming and inefficient. Decentralized digital identity makes the supply chain as efficient as possible. Decentralized ID could even be used to help verify voting results, which increasingly becomes an issue with each passing year.

Final Thoughts on Decentralized Identity

Data privacy and security will only become increasingly important as our lives continue to move online. Security and privacy aren’t the only reasons to adopt decentralized identity management, either. Decentralized identity and verified credentials play an important role in complex API systems and microservices, too, delivering not only an improved UX but also a developer experience (DX). You shouldn’t have to choose between convenience, privacy, and security.