Source: Coinbase
Translated by: MarsBit, MK
Tl;dr: Big tech companies managing our online identities leads to more data control in the hands of corporations. Decentralized identity verification offers an alternative where third parties do not store crucial identity proofs, and large tech companies do not oversee the solution or your data.
In many places across the country, all you need to check out at Whole Foods is your hand. Amazon recently announced plans to expand this payment system to stores nationwide, as well as other retailers, concert venues, and sports arenas.
The expansion plan, announced in July, is part of the company's efforts to integrate biometric data into its payment system, responding directly to the growing competition from Apple and Google in the digital wallet space. But applications like Whole Foods underestimate Amazon's larger ambitions: identity verification through biometrics. In the long run, Amazon One hopes to become a one-stop-shop for all identity needs, including retail payments and age verification, and potentially sensitive data like medical records in the future.
The demand for better online identity verification is not new. Before the internet, most people relied on physical identity documents and cards such as birth certificates, driver's licenses, or passports. These documents were issued by a trusted public institution, usually the government, but they were still susceptible to fraud and loss. In 2023, an estimated 850 million people globally do not have any official form of identification.
With the emergence of the internet came digital identity solutions that relied on usernames and passwords for logging into systems. These digital identities were more accessible and user-friendly. However, anyone who has forgotten their login information or become a victim of data breaches knows that this solution is flawed at best. Additionally, most of the digital identity solutions used today can only verify a user's identity on specific digital platforms, lacking real-world applicability.
Newer identity verification solutions like Amazon One, also known as federated identities, attempt to address the core inconveniences and security challenges of digital identity verification. However, because they rely on centralized third parties like Amazon or Google to store information, they are still susceptible to security and privacy risks. In fact, the prospect of Amazon or other tech giants collecting, storing, and sharing vast amounts of user biometric data has raised privacy concerns among civil rights groups, skeptics quickly pointing out the cybersecurity and hacking vulnerabilities that come with outsourcing core public needs to private companies.
Luckily, there is a promising alternative that is both user-friendly and does not rely on centralized entities. Decentralized identity (DiD) leverages blockchain technology to address the security, privacy, and consent issues associated with traditional forms of identity verification.
DiD eliminates the need to outsource identity management to centralized institutions. Instead, user data is distributed across the blockchain and the user's own digital wallet. With DiD, trusted third-party "issuers" verify critical identifiers and credentials, whether it be a birth certificate issued by the government, an employment certificate issued by an employer, or a diploma issued by a university. When a third party requests this information, users provide proof of credentials by accessing the data stored on the blockchain and locally.
The potential benefits of such a decentralized identity system are significant. Because DiD allows users to answer questions like "Do you meet the income requirements" without revealing unnecessary information like account numbers and birthdates, this technology addresses many key issues associated with traditional forms of identity verification, including:
Privacy and control concerns (no one can access your personally identifiable information without your consent);
Convenience (only one true source of information instead of multiple passwords and isolated accounts);
Portability (your DiD comes with you if you move or change services);
Security (data is encrypted);
Expanded access (available to anyone with a mobile phone or internet access);
Benefits for other institutions, such as the convenience of verification and no longer needing extensive data repositories.
The ability to prove that you are who you say you are underlies everything we do in life, from shopping to employment to participating in our civic society. As our economy becomes increasingly digital, the ability to identify oneself online will become increasingly critical. At the same time, the acquisition and availability of identity have long been ongoing policy issues, and we need to find a solution that works for everyone.
To turn decentralized identity from promise to reality, it will need to overcome network effects and other issues, such as interoperability and accessibility. Only through widespread adoption can the full utility of decentralized identity be realized. Governments around the world have started recognizing this, and both the European Union and Argentina have begun adopting some form of decentralized identity solutions.
In the United States, the clarity of regulations regarding blockchain technology will be crucial to the success of decentralized identity. For example, some companies have developed innovative approaches using blockchain and decentralized identity to improve compliance and better combat money laundering. However, the lack of clear regulatory guidance in the cryptocurrency space is currently hindering the pace of innovation in this field. As the United States considers future paths, priority should be given to identity systems that best protect user control, consent, and privacy.
