Decentralized Identity: How 11 Mega Trends are Driving Adoption and Shaping the Future
Building out the digital backbone for authentic social, sustainable, and economic interactions
Introduction
In the rapidly evolving digital landscape, the concept of identity is undergoing a significant transformation. The traditional centralized models of identity management, where a single authority verifies and manages identities, are increasingly being challenged by decentralized identity technology. This technology, also known as self-sovereign identity, empowers individuals, organizations, and even systems and devices to have greater control over their own digital identities. It creates a system where identities are interoperable, portable, and not reliant on any central authority.
Decentralized identity technology has the potential to revolutionize many sectors, from finance and healthcare to supply chain management and social media. It promises enhanced privacy, improved business confidentiality, reduced fraud, and more efficient processes. Moreover, it is a key enabler for ‘open ecosystems’, which are becoming the ‘new normal’ in our increasingly interconnected world. By providing a secure, verifiable, and user-controlled identity layer, decentralized identity technology allows for trust, machine automation and cooperation in these open ecosystems.
However, the adoption of this technology is not happening in a vacuum. It is being shaped and driven by a range of broader trends in technology, society, and regulation.
Understanding these mega trends is crucial for anyone seeking to grasp the future of decentralized identity. These trends are the forces that are driving the adoption of the technology, shaping its development, and determining its potential impacts.
In this article, we dive into the need for identity, trust in open ecosystems, and global issues defining the mega trends. We will prioritize how each trend is driving the adoption of decentralized identity technology. By doing so, we aim to provide a comprehensive overview of the forces that are shaping the future of decentralized identity.
The Case for Identity & Trust as a Meta-platform for Open Ecosystems and Data Spaces
In the age of digital transformation, the concept of decentralized identity has emerged as a critical component in the development of open ecosystems. Open ecosystems are dynamic systems characterized by a high degree of interconnectivity, where diverse actors co-create value through collaboration and competition. They are open in the sense that they allow for the free flow of information and resources, and they are not controlled by a single entity.
Meta-platforms, such as decentralized identity systems, are fundamentally built on open standards. This ensures interoperability, fosters innovation, and prevents vendor lock-in. Decentralized Identifiers (DIDs) and Verifiable Credentials (VCs) are prime examples of such open standards. DIDs provide a universal addressing system that enables secure and efficient interactions among diverse actors in an open ecosystem as well as secure mechanisms for compliance controls such as security and key rotation. VCs, on the other hand, provide a standardized way to express and verify claims about an identity. Together, DIDs and VCs form a ‘digital backbone’ of a standards-based open meta-platform for identity, trust, and data sharing.
They enable secure and efficient authorization, provenance verification, confidentiality, and data exchange, which are essential for the seamless operation of complex systems in the digital age. This open, standards-based approach is key to realizing the full potential of decentralized identity and fostering trust in open ecosystems, where multi-party relationships are involved.
This shift, often referred to as ‘participant control’, harmonizes the interests of both participants and traditional centralised platform operators. It empowers individual actors vis-à-vis centralised platforms and acts as a safeguard against exploitation, while simultaneously enhancing the overall value of the meta-platform. Decentralized identity technology fosters a much broader, more equitable digital ecosystem.
Decentralized identity is crucial as it provides the connective pathways or the ‘protocol’ that unlocks the potent force of data-flow decentralization with embedded mechanisms for trust chain verification. It forms the foundation of a meta-platform that can out-compete traditional, centralized platforms plays. Therefore the concept is picked-up by data sovereignty and data space projects such as Gaia-X, Catena-X, Manufacturing-X, and Energy Data Exchange (ed-X).
Note: While the concept of an ‘open ecosystem’ suggests unrestricted interaction, it does not preclude the implementation of authorization mechanisms to ensure secure and compliant transactions. In this context, any party that fulfills the necessary compliance controls can be identified as an ‘authorized trading partner’ (ATP), capable of interacting with other similarly authorized entities. Importantly, authorization can be inherited from other trusted ecosystems, such as another Gaia-X federation. This means that if an ecosystem accepts the trust framework and the ‘Level of Assurance’ (LoA) safeguards of another ecosystem, it acknowledges its authentication and authorization mechanisms as trustworthy. As a result, its participants can seamlessly interact and transact with those of the accepted ecosystem, fostering a secure, trusted, and efficient environment for digital interactions across multiple ‘federated ecosystems’.
The ‘New Normal’: Decentralized Identity Transforming the Economics of Open Ecosystems
The concept of Metcalfe’s Law, which states that the value of a network is proportional to the square of the number of its users, is a fundamental principle in understanding the economic value of traditional platforms. However, in the context of decentralized identity meta-platforms, the value is derived not only from the number of users but also from the level of cooperation between them. This implies that a group of cooperating members and federated platform ecosystems on a decentralized identity meta-platform can potentially outperform traditional, centralized identity platforms.
The macro-economic advantage of this cooperation is significant for both, the individual participants and the platforms themselves, as they can leverage shared resources, enhance interoperability, and foster a more robust and resilient network at lower on-boarding and transaction costs across previously unknown value chain actors. The reduction in transaction costs offered by the meta-platform is a key driver of its growth.
On a micro-level, the decentralization of identity infrastructure provides immediate value for governments and large corporations, making infrastructural investments in this direction appealing. Security and compliance controls can be established and automated across the entirety of the value chain actors, automating today’s manual or paper-based processes.
The technology also impacts individual consumers, who are increasingly seeking ways to regain control over their digital identities and verify claims about the brands they interact with and the services and products they consume. Furthermore, this technology opens up new avenues for peer-to-peer transactions, enabling individuals to securely exchange value without the need for a third party. This reduces transactions costs and enhances the safety of these transactions, fostering a sense of trust and autonomy among participants.
Decentralized identity, in the context of open ecosystems, impacts transaction cost economics, a concept explored by economist Ronald Coase in ‘The Nature of the Firm’. This could potentially shift the boundaries of firms towards smaller entities, changing the competitive landscape with smaller, agile entities becoming more prevalent. This trend is further accelerated by recent generative AI innovations. In essence, decentralized identity could contribute to a more distributed economic landscape, redefining firm boundaries and promoting open ecosystems.
Potential challenges and limitations of decentralized identity in open ecosystems could include issues related to its technical implementation complexity. It’s also important to consider the potential for misuse of such systems, and the need for robust trust and governance mechanisms to ensure that they are used ethically and responsibly.
While decentralized identity systems can reduce transaction costs and enhance efficiency, they also require ecosystem leadership and upfront investment in ecosystem adoption. This could potentially be a barrier, particularly for smaller firms or those in developing countries. Decentralized identity systems also rely on the integrity, data privacy, and reliability of the underlying technology. Any vulnerabilities or failures in the technology could potentially undermine the security and trustworthiness of the system.
Hence, the adoption and success of decentralized identity systems in open ecosystems depends on industry body and regulatory support and the development of standards, policies and frameworks that enable these new models of identity management. For instance, the European Union’s eIDAS 2.0 regulation provides a regulatory framework that aims to establish a secure and interoperable infrastructure for digital identities across Europe. Similarly, the Catena-X Governance Framework, driven by the Catena-X industry body, is an initiative that seeks to establish a common trust and data exchange standard among automotive supply chain actors. Lastly, the Open Credential Initiative, initiated by Spherity and driven by the US Pharma Supply Chain for DSCSA compliance, is an example of an industry-led effort to standardize and improve the security of supply chain data exchange.
Open ecosystems, the ‘new normal’, require the ability to establish and verify identity. Decentralised identity, as a meta-platform, is key to trust and cyber-physical security in the interconnected world. It underpins secure interactions within the digital fabric of digital agents, systems, and IoT devices, facilitating dynamic cooperation across cyber-physical value chains, and boosting the economic value of these ecosystems.
Navigating ‘Multifaceted Challenges’ and Regulations with Decentralized Identity
Building upon the concept of open ecosystems as the ‘new normal’, we find ourselves at the intersection of numerous global challenges in the 21st century. This situation is characterized by an interplay of multiple global issues, such as cybersecurity threats, supply chain security, environmental risks, green washing, worthless carbon credits, human rights, data breaches, safety of AI systems, trade controls, and digital inclusion.
The term ‘multifaceted challenges’ refers to a situation where multiple issues occur simultaneously, each with its own complexity and requiring its own solutions, but also interconnected in ways that make them more challenging to address.
Addressing these multifaceted challenges is a key requirement for enhancing the ‘digital backbone’ of our time. Decentralized identity appears to be a viable and homogeneous architecture pattern for buildung digital solutions and key for the ‘next level digital backbone’.
By establishing data provenance, trust frameworks, trust chains, and trust algorithms, decentralized identity can enhance the security and integrity of digital interactions, making it a key component of the infrastructure backbone needed to establish an effective digital response to the multifaceted challenges in an increasingly regulated world.
The European Union, a global leader in driving new regulations for the greater good, has developed a series of regulations across four key clusters — security, sustainability, technology, and society.
These regulations aim to foster improvements in these areas, shaping a more resilient, sustainable, and technologically advanced society.
Security: The European Union’s eIDAS 2.0 regulation, GDPR, Digital EURO, the NIS2 Directive, and the Cyber Resilience Act are key drivers in providing a secure, privacy-respecting, and interoperable infrastructure for digital identities across Europe. These regulations strengthen the security of digital identities for both, human and non-human actors, and increase trust in digital value chains and financial transactions. They underscore the importance of decentralized identity in enhancing cybersecurity as well as resilience regarding cyber-crime and cyber warfare.
Sustainability: Emerging ESG-related regulations, such as the EU Taxonomy for Sustainable Activities, the Green Claims Proposal, and the Ecodesign for Sustainable Products Regulation, are reshaping the global landscape. The German Supply Chain Law further emphasizes the need for secure and verifiable digital identities. Decentralized identity technology plays a crucial role in ensuring compliance with these regulations, providing a trust framework for signing claims and verifying data related to ESG-related Claims, Green Claims or Digital Product Passports (DPP).
Technology: The EU Data Strategy and the EU Data Act are pivotal initiatives aimed at creating a single market for data, ensuring Europe’s global competitiveness and data sovereignty. The proposed EU Regulation on Artificial Intelligence categorizes AI applications into risk levels, emphasizing the importance of data provenance in AI systems. Decentralized identity emerges as an important tool in this landscape, providing a secure, verifiable method for data provenance and authenticity. Moreover, the Markets in Crypto-Assets (MiCA) FinTech regulation streamlines distributed ledger technology (DLT), virtual asset regulation, and Crypto Asset Service Provider (CASP) offerings across the EU. It provides legal certainty for crypto assets, including cryptocurrencies, security tokens, and stablecoins, while ensuring user and investor protection.
Society: Trade compliance regulations are crucial in the global business landscape. Decentralized identity technology plays a crucial role in this landscape by providing secure and portable verifiable credentials for automating controls. In the context of digital inclusion, regulations that promote equitable access to digital services are of paramount importance. For consumer products, decentralized identity technology is highly relevant, particularly in the context of EU regulations such as the ℮-mark for prepackaged goods.
All these regulations emphasize the need for identity and verifiability of data in open ecosystems. They aim to prevent people, companies, and machines from making misleading or false claims and to establish auditability and enforcement. The regulations either increase manual transaction costs or necessitate a ‘digital backbone’ for identity and trust, enabling automated compliance controls, and efficient sharing and ‘computerised processing’ of verifiable data.
This digital backbone, built upon open identity standards, needs the ability to connect into multiple trust domains such as Governments, Trust Service Providers (TSPs), Open Credentialing Initiative (OCI), TÜV, GS1, Forest Stewardship Council® (FSC®), Gold Standard, Global Legal Entity Identifier Foundation (GLEIF), Guarantee of Origin (GoO) Association of Issuing Bodies, or industry-specific trust domains, all while adhering to a conformance programme.
Geopolitical shifts and the European Union’s strategy towards identity, data sovereignty, cyber-security and ESG regulation are further influencing the trajectory of digital identity. The rise of cyber warfare and the emergence of cyber-physical systems underscore the need for robust security measures and the importance of digital identity in ensuring these.
Moreover, the disruption caused by generative AI, which is flooding the internet with synthetic and potentially malicious content and disinformation, poses new challenges to authenticity and trust. In this context, digital identity technology plays a crucial role in maintaining the integrity of digital interactions.
This all leads to the requirement of secure digital identity for open ecosystems. Decentralized digital identity is not just a response to the requirements and opportunities of our time, but a proactive strategy to shape the next level digital backbone, enabling trust and cooperation in an increasingly interconnected world.
The Eleven Mega Trends Shaping the Future of Decentralized Identity Technology
The global shifts and multi-faceted challenges have led to the emergence of eleven mega trends that are driving the adoption of decentralized identity. These trends, driven by severe security challenges, sustainability regulatory changes, technological advancements, and evolving societal needs, are transforming the way we verify identities, manage data, and embed trust algorithms into our daily digital life.
We identified 11 mega trends driving decentralized identity adoption and grouped them into four clusters: Security (Sec) , Sustainability (Sus), Technology (Tech), and Social (Soc). This clustering helps to categorize the trends based on their primary area of impact and the key issues they address.
Below, we present a short description list of the mega trends each representing a distinct aspect of the evolving landscape of decentralized identity:
- Human Identity Verification, Passwordless Authentication, the EUDI Wallet, Payments, and the Web3 (Sec): This trend underscores the role of decentralized identity technology in secure digital identity verification and authentication for access to portals and services. It encompasses the end-user wallet strategies of Microsoft, Apple and Google. In particular, the trend highlights the EUDI Wallet’s potential for streamlining interactions with public services, financial institutions, smart city ecosystems, eCommerce platforms, mobility services, and healthcare providers across Europe, while also facilitating secure payments and transactions, including the use of stablecoins and/or Central Bank Digital Currencies (CBDC). Web 3 opens up a new peer-to-peer opportunity space for decentralised interactions and new forms of value exchange. This trend is addressing human rights requirements regarding access to digital identity for all humans and data privacy.
- Securing Cyber-Physical Systems in an Interconnected and Augmented World (Sec): This trend emphasizes the critical role of decentralized identity technology in securing IoT devices, fleets, and the broader infrastructure of cyber-physical systems (CPS). It provides identity for machines and IT/OT systems while highlighting the importance of identity in bolstering the trust and security of automated transactions and data sharing in on-demand markets, decentralised markets, and dynamically defined cyber-physical value chains. As the world becomes more interconnected, including the augmentation of human interactions and the ‘industrial metaverse’, secure identity mechanisms become crucial. They prevent security breaches, improve the safety of Cyber-Physical Systems (CPS), and ensure the integrity of data and automated transactions. For instance, decentralized identity solutions are being evaluated for securing the cyber-physical energy grid.
- Cybersecurity, API Endpoint Protection and ZTA in the Age of Cyber-Warfare (Sec): This trend underscores the importance of decentralized identity technology in bolstering cybersecurity, safeguarding API endpoints, and implementing Zero Trust Architecture (ZTA). API endpoints, often targeted in cyberattacks, require robust protection to prevent unauthorized access and data breaches. Decentralized identity technology enhances security by providing verifiable identity assertions, reducing impersonation risks, and fostering secure, resilient digital ecosystems.
- Frictionless Enterprise Onboarding, Compliance, and Security for Supply Chains & Financial Services (Sec): This trend focuses on how decentralized identity technology enhances B2B transactions. It streamlines enterprise onboarding and fortifies security in supply chains. By providing a secure way of verifying identities and assertions (e.g., AML, sanction list assertions, human rights, labor rights, child labor, antibribery, HSE, or responsible operations) about supply chain counter-parties, it mitigates risks such as credit, operational, environmental, and security. It supports regulatory compliance and fosters trust in B2B interactions. Furthermore, the adoption of standards like the Global Legal Entity Identifier Foundation’s (GLEIF) Legal Entity Identifier (LEI) is expected to further enhance this process. With verifiable LEI credentials, verifiers can look up the GLEIF golden record and immediately check the respective company registry entries of a counter-party in the respective national company registry. Hence, the financial service sector stands to gain substantially from the implementation of enterprise identity. This includes improvements in areas such as customer onboarding, trade finance, and the selling, processing, settlement, and trading of (cross-border) financial products.
- Regulatory ESG Compliance, Digital Product Passport (DPP), and Transformation Finance (Sus): This trend highlights decentralized identity technology’s role in automating ESG compliance in B2B supply chain interactions and preventing greenwashing. It provides a tool for verification of ESG assertions at scale and on a transaction level. It emphasizes the DPP’s role in tracing product journeys with verifiable assertions issued by suppliers, producers, quality officers, and auditors. Furthermore, it underscores the importance of verifiable ESG credit scoring in securing investments for sustainable or transformation finance.
- Carbon Reduction Management and Authentic Circular Economy (Sus): This trend spotlights the role of decentralized identity technology in carbon reduction, waste and raw material management. It emphasizes the creation of verifiable digital records for circular supply chains, carbon credits, renewable energy certificates, and product carbon footprints. This approach aims to drive fact-based progress towards environmental sustainability goals and the authentic circular economy.
- Decentralised Data Economy, Data Sovereignty, Data Spaces, and EU Data Strategy (Tech): This trend encapsulates the shift towards decentralized data management, the concept of data spaces, and the growing emphasis on data sovereignty. It is a key enabler for the ‘data economy’ and the ‘resource optimisation economy’ for supply chains and cyber-physical systems, hence enabling other related trends. It reflects the EU’s strategy to create a single market for data, promoting secure and easy access to high-quality industrial data. This trend is driving the adoption of decentralized identity solutions that align with these principles, ensuring data protection and data owner control. This trend, particularly relevant in the context of Industry 4.0, is gaining traction globally, with jurisdictions such as Japan also embracing the principles of decentralization, data sovereignty, and secure data access.
- Authenticity and Trust Scoring in the Age of Deep Fakes and Generative AI (Tec): This trend underscores the critical role of decentralized identity technology in maintaining authenticity and establishing trust in the face of challenges posed by deep fakes and generative AI content that is flooding the internet. As these technologies advance, they create a complex landscape where verifying the authenticity of digital content becomes increasingly difficult. Decentralized identity technology can provide a data provenance solution, enabling the development of trust scoring systems that offer a quantifiable measure of the reliability of digital identities, data, algorithms, AI services, and the content associated with them.
- Foreign Trade Compliance and Friendshoring (Soc): This trend emphasizes the role of decentralized identity technology in ensuring export and import compliance, particularly for dual-use, critical infrastructure, and defense goods. It highlights the value of verifiable trade data for supplier/customer on-boarding, data access management, customs use cases, and the emerging practice of ‘friendshoring’, i.e., aligning trade practices with friendly countries and national security guidelines. Decentralized identity technology facilitates secure and efficient B2B transactions, fostering trust in international trade.
- Inclusive and Barrier-Free Digital Identity for Under-served Communities & SMEs in the Global South (Soc): This trend dives into the use of decentralized identity technology to foster inclusion for individuals with low digital literacy and displaced individuals, as well as less digitally connected SMEs in the Global South. For those with low digital literacy and the displaced, plastic cards embedded with some biometrics and DIDs/VCs provide a secure, portable identity, enabling access to aid even in areas with limited connectivity. For SMEs, DIDs/VCs and simplified cloud registries alleviate onboarding barriers in global trade with a ‘Lightweight SME ID’, ensuring equitable participation in international trade and ESG-regulated markets. This trend underscores the potential of decentralized identity in empowering marginalized groups, reducing barriers, and supporting sustainable and equitable growth.
- Direct Brand-to-Consumer Interactions for Object Marketing and Customer Engagement (Soc): This trend explores the use of decentralized identity technology in ‘object marketing’, fostering direct brand-consumer interactions via product digital twins. It underscores the technology’s potential in enhancing customer engagement strategies like ‘Share the Look’ in cosmetics and influencer marketing, where verifiable digital identities boost trust, authenticity and marketing innovations. Furthermore, the application of the EU’s ℮-mark regulation in this context can ensure the accuracy of verifiable quantity declarations on pre-packaged goods, further enhancing consumer trust and compliance.
A 2 x 2 Matrix Approach to Prioritisation, Impact and Feasibility
Navigating 21st-century challenges, we’re facing interconnected global issues from climate change to geopolitical conflicts, demanding urgent action, implementation of compliance controls, and innovative solutions.
Decentralised identity technologies are increasingly significant, offering potential solutions through secure identity management, verifiability of data, and compliance control systems.
To effectively harness this potential, we developed a framework for prioritising our trends in a 2x2 matrix. We consider two key factors: ‘Impact’ and ‘Feasibility’.
- Impact: This refers to the potential effect or influence of the trend on value chain actors and societies as a whole or the broader industry. Trends with high impact could significantly alter business and market dynamics or making a meaningful difference in addressing pressing global issues by ‘improving the state of the world’. See ‘Addendum — Global Challenges for Impact: An Overview of Humanity’s Most Pressing Issues’ for details.
- Feasibility: This refers to the practicality of addressing or leveraging the trend given an ecosystems’ current capabilities, resources, and strategic objectives. Our assessment evaluates ‘feasibility’ of use cases with a very focused scope that deliver value for an entire minimum viable ecosystem. The simpler the initial scope the better. Trends with high feasibility are those that the ecosystem actors are well-positioned to take advantage of. The complexity of the scope can then be increased further when the initial technology backbone for identity and trust is in place.
It shall be noted that feasibility is always impacted by uncertainty about enforcement of regulations and lobbying pressure by the industry to delay enforcement deadlines of legal requirements or maintain competitive advantages in the current market environment. This effect is not considered in our 2 x 2 matrix methodology.
By evaluating decentralised identity mega trends based on their potential impact and feasibility, we created the following 2 x 2 matrix that provides an actionable roadmap for prioritisation:
This approach allows us to focus our efforts on mega trends with ‘high impact’ and ‘high feasibility’ where they are most likely to make a meaningful difference in addressing the pressing issues we face and ultimately delivering a ‘Product Market Fit’ (PMF) today.
High Impact, High Feasibility: Top-priority Trends
- Frictionless Enterprise Onboarding, Compliance, and Security for Supply Chains & Financial Services (4)
- Regulatory ESG Compliance, Digital Product Passport (DPP), and Transformation Finance (5)
- Inclusive and Barrier-Free Digital Identity for Under-served Communities & SMEs in the Global South (10)
Spherity is strategically focusing on two high-impact, high-feasibility trends: 4. Frictionless Enterprise Onboarding, Compliance, and Security for Supply Chains & Financial Services, and 5. Regulatory ESG Compliance, Digital Product Passport (DPP), and Transformation Finance.
Our product, CARO, is a credentialing service for enterprise identity and supply chain security that simplifies compliance with DSCSA requirements for ‘Authorized Trading Partners’. It digitises a trading partner’s ‘license to operate’ and offers a new layer of security, efficiency, and convenience to DSCSA compliance, protecting US Pharma supply chain actors against bad actors and saving time and resources through automated compliance controls and audit trails.
Through our partnership with Bundesanzeiger Verlag, we are beginning to credentialize a range of compliance control assertions, including enterprise registry information, Legal Entity Identifiers (LEIs), Anti-Money Laundering (AML) checks, and sanction list verifications. We anticipate this will have significant implications for three sectors: supply chain, traditional financial services, and decentralized finance (DeFi). These assertions are expected to serve as off-chain and on-chain attestations, automating processes in cross-border payments with fiat money and Central Bank Digital Currencies (CBDCs), enabling DeFi-style CBDC currency exchanges, and facilitating traditional and smart contract-enabled programmable money transfers and settlement mechanisms. Furthermore, they could pave the way for innovative financial products, such as yield farming for liquidity in the DeFi space.
In parallel, we are developing a decentralized Digital Product Passport (DPP) solution. The DPP is a digital representation of a physical product, providing a unique, verifiable identity and life-cycle audit trails based on W3C standards. This solution is designed to boost compliance with regulatory requirements introduced by the ‘Ecodesign for Sustainable Products Regulation’, the new ‘EU Battery Regulation’, or the ‘US Inflation Reduction Act’, increasing trustworthy, verifiable information about products, their reuse, content, and recycling potential.
Both, CARO and the DPP, are designed to deliver value in terms of security, compliance, transparency, and process automation within their respective ecosystems, making them key focus areas of Spherity’s product development efforts.
For 10. Inclusive and Barrier-Free Digital Identity for Under-served Communities & SMEs in the Global South this mega trend is a high-impact trend due to its potential to address global issues like human migration and inclusion of uneducated individuals. By offering secure identities to this group, and easing onboarding for less digitally equipped SMEs, it can significantly improve access to aid and stimulate economic growth while providing SMEs fair access to global markets, especially allowing the SMEs to participate in (4) and (5). In terms of feasibility, this trend leverages cost-effective technologies like plastic cards with DIDs/VCs and simplified cloud registries. These solutions are affordable, easy to implement, and usable even in areas with limited digital infrastructure. Furthermore, the trend is backed by global aid agencies and governments, enhancing its feasibility.
High Impact, Low Feasibility: Significant impact, but may be more challenging to implement
- Securing Cyber-Physical Systems in an Interconnected and Augmented World (2)
- Cybersecurity, API Endpoint Protection and ZTA in the Age of Cyber-Warfare (3)
- Carbon Reduction Management and Authentic Circular Economy (6)
- Decentralised Data Economy, Data Sovereignty, Data Spaces, and EU Data Strategy (7)
- Foreign Trade Compliance and Friendshoring (8)
- Authenticity and Trust Scoring in the Age of Deep Fakes and Generative AI (9)
Given the rapid and dynamic advancements in 4. Deep Fakes and Generative AI, it is crucial to proactively monitor opportunities related to decentralized identity, particularly in the realms of data authenticity and provenance, as well as validated operational AI models. The significance and urgency of this topic are projected to escalate considerably in the upcoming 12 months, propelling the development of innovative solutions in this field. Therefore, we strongly recommend organizations to prioritize this area, aligning their strategic focus to harness the potential of decentralized identity in mitigating the challenges posed by generative AI.
Low Impact, High Feasibility: Feasible to implement, but may not have a significant impact in relation to the most pressing global issues
- Human Identity Verification, Passwordless Authentication, the EUDI Wallet, Payments, and the Web3 (1)
- Direct Brand-to-Consumer Interactions for Object Marketing and Customer Engagement (11)
For 1. Human Identity Verification, Passwordless Authentication, the EUDI Wallet, Payments, and the Web3, we anticipate that the coordinated EU-wide activities, such as the EUDI Wallet Architecture Reference Framework (ARF) and the Large Scale Pilots (LSP), will result in a functional EUDI wallet within the next 18–24 months.
The EUDI wallet is an initiative of the European Union to establish a ‘qualified identity wallets infrastructure’ for all European citizens. It will be a significant achievement, marking a milestone in the field of digital identity. However, when compared to the most pressing issues, we assess the impact of this development as ‘moderate’, because human identity is only indirectly connected to global issues such as cyber-security.
The government-led EUDI wallet work is further amplified by innovations in the Web3 space. Web3, the next generation of the internet, is a decentralized and blockchain-powered ecosystem that enables peer-to-peer transactions, tokenization of digital and physical assets, and the creation of Non-Fungible Tokens (NFTs). It’s the foundation of the Metaverse, supports hybrid wallets for Self-Sovereign Identity (SSI) and cryptocurrencies, fosters Decentralized Finance (DeFi), and enables new organizational structures like Decentralized Autonomous Organizations (DAOs).
It’s crucial to note that the success of the EUDI wallet and Web3 will largely depend on its integration with other systems and its acceptance by users as well as the wallet competition with big tech companies such as Microsoft, Apple and Google.
For 11. Direct Brand-to-Consumer Interactions for Object Marketing and Customer Engagement, this mega trend, while having a low impact in terms of addressing the most pressing global issues, holds immense value for product marketing and customer engagement. The implementation of marketing aspects of this trend has a low dependency on regulations and can be readily adopted within the ecosystem of big brands. Furthermore, its potential for integration with influencer marketing strategies makes it highly feasible and likely to be funded due to a positive business case for the marketing department. Therefore, while its broader societal impact may be limited, its potential to revolutionize brand-consumer interactions is significant.
The Time for Decentralized Identity is Now: Regulatory Changes and Market Demands
As we stand at the precipice of a new era, the need for implementing decentralized identity solutions has never been more urgent. The confluence of regulatory changes, market demands, and global challenges necessitates immediate action.
Consider the US Drug Supply Chain Security Act. With enforcement by the FDA starting in November 2023, companies are under pressure to ensure compliance. The FDA has made it clear that they won’t shy away from those who are not ready, especially those without the necessary systems in place for DSCSA compliance.
In Germany, the Supply Chain Act obliges companies to analyze supply chain contracts and identify risks to human rights. Recent developments, such as Deka Investment’s decision to remove VW shares from its investment products due to non-compliance, underscore the financial implications of failing to meet these standards.
The EU’s New Battery Regulation and Eco-design for Sustainable Products mandate a digital product passport for batteries and waste batteries by January 2026. Companies that fail to comply risk losing their license to operate, face fines, and bear increasing compliance costs. This also poses market access risks for companies outside the EU. With the Inflation Reduction Act (IRA) the US established a similar policy framework for the adoption of digital product passports for batteries.
Furthermore, the EU Directive on corporate sustainability due diligence and the emerging focus on ESG and Sustainable Finance require mandatory sustainability due diligence for supplier or customer on-boarding. Recent events, such as the raid on Deutsche Bank’s DWS over ‘greenwashing’ claims and the lawsuit against BP, Shell, dm & co. for “climate fraud” by a German Environmental Pressure Group, highlight the reputational and legal risks associated with non-compliance.
In this rapidly evolving landscape, decentralized identity emerges as a critical tool for navigating regulatory changes, ensuring compliance, and meeting market demands.
The time for action is now. The adoption of decentralized identity is not just a strategic move — it’s an imperative for enabling impact solutions and success in the 21st century.
About Spherity
Spherity is a German decentralized digital identity software provider, bringing secure identities to enterprises, machines, products, data, and even algorithms. Spherity provides the enabling technology to digitalize and automate compliance processes in highly-regulated technical sectors. Spherity’s products for enterprise wallets and object identity empower cyber security, efficiency, and data interoperability among digital value chain actors.
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Addendum
You will find the “Addendum — Global Challenges for Impact: An Overview of Humanity’s Most Pressing Issues” here.
