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Guide To Decentralized IDs & Why DIDs Matter In 2022

Last week, we shared Fractal’s 2022 Strategy and Roadmap where we presented how we will implement Fractal’s multi-chain DID solution to web3 projects (e.g. DEXs, NFTs, DAOs, Launchpads). Today we’d like to kick off a mini-series on DIDs, how they work, why they matter for users, businesses, and mainstream adoption of web3! Let’s take a closer look.

Digital identifiers (Digital IDs) are pointers to attributes in an individual’s identity (e.g. passport number in a passport, age in an ID) that prove an individual’s identity and verify their right to access services or information. These digital IDs, which include numerous information about individuals such as their age, gender, or address, are typically owned by large companies who manage and analyze this data for marketing and advertising purposes.

Decentralized IDs are digital identifiers that aim to put users back in control of their identity and associated attributes.

What is a decentralized ID?

Decentralized IDs (DIDs), also known as decentralized identifiers, are digital IDs where individuals’ identifiers are replaced with self-owned IDs stored on the blockchain, and their associated data is stored on personal devices.

You can create your own DID, or have a DID provider, such as Fractal, create one for you. Then, for verification, you turn to issuers (e.g. government, school, bank) to provide claims against it.

Unlike traditional digital IDs, DIDs are not stored in the databases of vendors or organizations, therefore, are less vulnerable to data breaches or theft.

These DIDs have numerous use cases such as enabling credible and private customer KYC, eVoting, tax payments, event check-ins, etc.

How does a decentralized identity work?

Let’s take the following example to describe the working methodology of a DID. If you are signing a lease for a car, you need to provide the leasing company with different documents about your credentials, work contract, and bank credit score. In turn, the leasing company needs to verify this information.

If you own a DID, your wallet will generate unique identifiers of your credentials to which you own a private key. The public key of these identifiers is then published to a distributed ledger.

You can present to the leasing office these verifiable decentralized identifiers of your credentials which, at any time, you can revoke and remove their access to it.

It is also important to note that you can share specific sections of your data with the leasing company. For example, using a DID you can share your income information with the leasing office without needing to share your entire contract details with them.

In a nutshell, a decentralized ID has 3 aspects:

  1. The issuers (e.g. government, university, corporate)
  2. The verifier (i.e. third party who verifies the credentials)
  3. The ID owner

Why are DIDs important?

Decentralized identities have been rising in popularity in the past five years due to their ability to maintain the integrity of the data as well as the privacy of end-users. See figure 1.

Figure 1. Increase in search 4x for decentralized identity on Google since 2017.

The importance of having a decentralized ID comes from 3 aspects:

1. Data ownership

Today, most of us voluntarily share our personally identifiable information (PII) (e.g. name, age, phone number, etc.) with brands in exchange for easy and personalized experiences.

For example, when you create an Uber’s account, you provide Uber with your PII, and most likely your credit card information in exchange for having an easy payment method without needing to get cash out of your wallet or tap in your credit card number every time you hail a taxi.

Uber, on the other hand, stores this data in their databases, and leverages it to analyze customers’ behavior, detect trends and make profit from displaying ads or offering surge prices.

If Uber were to leverage DIDs to onboard their customers, they would only be able to access the selected data disclosed by the user for the sake of onboarding.

2. Data protection

Sharing personal data with businesses increases its exposure to cyber-attacks and breaches. It’s been reported that by the end of 2021, more than 4,000 data breaches were disclosed publicly, exposing ~22B private records.

Leveraging DIDs to communicate your personal data with businesses protects your data from being stored on centralized and breachable databases. However, this would leave you responsible for protecting your data that is stored on your personal devices.

This represents an opportunity for businesses to ensure their compliance with global data privacy regulations while maintaining credible and verifiable KYC journeys.

3. Unified identities

DIDs provide users and businesses with a single version of the truth as they represent all the information about an individual including their demographics, financials, and social status. This eliminates the need to create multiple identities for different platforms as we do today (e.g. for each social media platform we have a different account).

How does Fractal enable this?

For the data owners and ID users, Fractal ID technology enables transparency and puts the power back into the hands of users by allowing them to create IDs and store their credentials within their own wallet and choose who those credentials are shared with.

Additionally, Fractal serves as a credible ID verifier providing ID document verification, liveness checks, face matches, source-of-wealth verification, AML checks, and proof of address checks. Thus, ensuring that users have a safer web3 experience, and helping businesses avoid ID scams, mitigate data breaches, and comply with data privacy regulations.

For more on decentralized identity

To explore decentralized identities in more details, read our in-depth articles:

About Fractal

Fractal’s mission is to empower and incentivize users & businesses to exchange data in a privacy-preserving way so that the balance of power and control between web platforms and their users is restored. Find out more in our roadmap for 2022.

If you are interested in exploring how KYC and decentralized identities (DIDs) can help you and your business, reach out to sales@fractal.id or book a meeting with our team.

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This article does not include elements of any contractual relationship. This article shall not be deemed to constitute a prospectus of any sort or a solicitation for investment or investment advice; nor does it in any way pertain to an offering or a solicitation of an offer to buy any securities in any jurisdiction.

For the avoidance of doubt, please note that the Protocol has not been fully developed. Any statements made about the Protocol are forward-looking statements that merely reflect Fractal’s intention for the functioning of the Protocol. There are known and unknown risks that can cause the results to differ from the forward-looking statements.

Fractal does not intend to express investment, financial, legal, tax, or any other advice, and any conclusions drawn from statements in this article or otherwise made by Fractal shall not be deemed to constitute advice in any jurisdiction.

Fractal’s intended purpose of the Tokens is to be used as means of payment for the services that will be offered within the Protocol (the “Services”). The purchase, ownership, receipt, or possession of Tokens carries no rights, express or implied, other than the right to use Tokens as a means to enable usage of Services in accordance with the then-applicable terms of use relating to the Services offered within the Protocol. The Tokens do not represent or confer any ownership right or stake, share, security, or equivalent rights, or any right to receive future revenue shares, intellectual property rights, or any other form of participation in or relating to the Protocol, Fractal, Service Providers or any of their corporate affiliates, other than any rights relating to the provision and receipt of Services, subject to the applicable terms, conditions or policies that may be adopted by participants in the Protocol.

This article was written by Alamira Jouman Hajjar, research analyst and content creator at Fractal ID.

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