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Decentralized ID Empowers Individuals to Protect and Manage their Own Identities

Tl;dr: Decentralized ID is a new solution that leverages blockchain technology to give users control over their own identities, solving many of the data security, privacy, and consent issues presented by traditional paper and digital IDs. It is also the first use case explored in a new series by the Coinbase Institute that lays out “why crypto” has transformational value and the policy considerations necessary to unlock that value.

By Coinbase

Policy

, April 5, 2023

Coinbase Institute

At Coinbase, we’re working hard to help update the financial system by building trusted products that expand the utility and adoption of crypto because we believe crypto and blockchain technology have the ability to increase economic freedom and opportunity around the world. Coinbase chose to become a public company in the US because we believe the US would best be served by embracing this fundamental innovation, but we’re also focused on international markets, many of which are moving forward with strategies to become “crypto hubs.” We would like to see the US take a similar approach, but a regulation by enforcement approach in the US is instead leading to a disappointing trend for crypto development in the US. This may mean that the US loses out on technology that could help unlock economic freedom and opportunity around the world. One important area of innovation to highlight is decentralized ID (DiD). 

Decentralized ID (DiD) has emerged as an identity management solution that relies on blockchain technology to give users control over their own identities, making the everyday accessing and sharing of information more seamless, private, and secure. This is important in the digital age, which has brought about a paradigm shift in the way we live, work, and interact. Experiences and information that used to exist in the analog world have shifted online, resulting in more personal information and user data being captured and stored by a host of third parties. This raises data privacy and security concerns, and can make it difficult for users to access their own information. 

Decentralized ID removes the need to outsource identity management to centralized authorities like governments or big tech. Instead, user data is distributed and stored on the blockchain and in users’ own digital wallets. With DiD, trusted third-party “issuers” verify key identifiers and credentials – whether a birth certificate issued by the state, proof of employment issued by an employer, or a diploma issued by a university. When a third party requests this information, the user presents proof of the credential by accessing the data stored on the blockchain and locally in their own wallet. 

Users can share relevant information as needed, while keeping other personal information private. For example, when supplying a prospective landlord with proof of sufficient income to rent an apartment, a user can share proof of salary without revealing unnecessary details like their bank account balance. By eliminating unnecessary data-sharing and siloed storage, DiD can significantly improve privacy and reduce the likelihood of hacks.  

DiD use cases range across numerous everyday transactions, from accessing public benefits, to opening a bank account, to proving age when renting a car or buying a beer. User’s decentralized identities are also portable, meaning individuals can take their identification data with them when they move to a new state or change banks or healthcare providers; this reduces  the “lock-in” effects that exist with current centralized data storage systems. 

Decentralized ID also has the potential to create a more inclusive and streamlined economy. More than one billion people worldwide lack formal identification, which can limit access to essential needs like healthcare or financial services. DiD allows anyone with internet access to provide proof of their name, birthdate, work experience, and more, quickly providing a verified means of identification controlled by the user. 

As the web3 ecosystem grows, DiD developers and policymakers should ensure the expansive potential of this and other decentralized technologies are accessible to all users. User control and privacy must be matched by ease of use and education that helps individuals get comfortable with new technologies and the responsibility of controlling their own data. Developers must also ensure that the various DiD systems currently in development are interoperable, so that all stakeholders can verify and credentialize relevant information. 

We must also ensure that this process is global. Governments around the world are already beginning to embrace DiD to develop faster and more reliable security checks; decentralize crucial identifying information related to education, healthcare, and agriculture; and open up access to services. Many innovative projects are underway that will change how we hold and share information about our personal identity, providing tangible benefits for individuals and institutions. As exploration in this space continues, regulatory clarity is needed so that individuals and private industry are comfortable innovating, embracing, and adopting DiD for daily use.

To learn more about DiD, dive into this new primer released by the Coinbase Institute. It is the first in a series of Coinbase Institute publications designed to both explain “why crypto” is valuable and analyze the policy considerations that must be implemented for this value to be realized. Coinbase is committed to building the most trusted products, services, and tools, and we look forward to exploring these topics in more depth in this ongoing series.

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