Blockchain And The Future Of Identity Verification

Blockchain was heralded as a revolutionary new development that changed the status quo of the established financial industry and its control over the storage and transfer of wealth when it was first conceived and as it rose in public awareness.

 

The initial supporters and proponents of blockchain frequently touted its anarchistic potential and ability to self-govern; however, this very ability has resulted in blockchain technology clashing with governments and regulators on numerous occasions, and the prevalence of scams, particularly before people understood the pseudo-anonymous nature of blockchain, has demonstrated clearly why identity verification is not a bad thing, but a useful one if done properly.

 

 

What is Identity Verification? 

 

Identity verification is the process of ensuring that a person is who they say they are when opening a bank account, applying for a loan, or engaging in other financial transactions. Though identity verification is an important security measure in combating new account fraud, it also plays a role in financial institutions' Know Your Customer (KYC) and anti-money laundering (AML) efforts, which assess and monitor customer risk.

 

Digital identity verification extends the concept of identity verification to today's remote world. With data breaches, account takeover attacks, and identity theft on the rise, as well as an increase in demand for remote processes due to the COVID-19 pandemic, businesses must detect identity fraud and determine if someone online is who they claim to be. Companies, governments, and financial institutions can use digital identity verification methods such as biometric verification, face recognition, and digital ID document verification to verify a person's identity online.

 

When identification and credentials are digital, everyone finds it easier to work with them: vaccination cards, academic credentials, occupational licenses, employee IDs, and more. This highly personal information, however, must be kept private and secure. Blockchain is being used by governments, businesses, and educational institutions to enable a secure and trusted infrastructure and improve services.

 

Identity verification is a process that allows you to confirm your identity and the accuracy of the information you provide. The procedure is typically based on data authentication of an individual's identity document, such as a passport, national identity card, or driver's license. Digital identity verification is done entirely online using technology, artificial intelligence, and machine learning solutions.

 

Also Read | What is FinTech Blockchain?

 

 

How does Blockchain Create Digital Identity? 

 

Building digital identities with blockchain is more important than it appears. According to Amanda Long, Director-General of the non-profit Consumers International, "individuals have the most to lose if things go wrong with digital ID." She specifically suggests that consumers should have control over their digital identity and how it is used and that it should be protected with top-tier data security.

 

As a result, blockchain technology appears to be destined to underpin digital identity. This is echoed by other high-profile individuals, such as Peggy Johnson, Microsoft's Executive Vice-President of Business Development. "We believe that technologies such as blockchain can play a significant role in developing a secure, portable, and personal solution for those who lack identity, but technology alone will not suffice."

 

This is related to the idea that shared standards must be developed and blockchain must become more widely adopted before we can use blockchain to create large-scale digital identity solutions. Having said that, blockchain technology is not yet universally recognized as the technology upon which a global digital identity system should be built.

 

There are numerous competing standards, and it will likely be years before leading governments accept a common blockchain-based digital identity solution. Nonetheless, the technical advantages provided by digital identity blockchain solutions indicate that this is most likely just a matter of time.

 

Before delving into the benefits of blockchain identity management, it is necessary to understand why there is such a focus on digital identity. With the rapid advancement of technology, digital identity has become an integral part of our lives, as previously discussed. You must create an account for your social media profiles to enter personal information such as your name, address, date of birth, phone number, and so on. Digital identity enables you to interact with and use various internet-based services, such as banking services. Given its importance in online financial transactions, digital identity has recently come under intense scrutiny. It is critical for expediting the customer onboarding process while also ensuring accuracy and preventing fraudulent activities.

 

Also Read | Top 7 Identity Management Tools

 

 

How does Blockchain Impact Digital Identity Management?

 

The primary question on everyone's mind right now must be the impact of blockchain on identity management. How can the benefits of blockchain identity management be realized? Many modern digital identity solutions are extremely sophisticated, albeit with a minor drawback. Digital identity solutions deployed on centralized systems are generally expensive and do not always produce the desired results.

 

The significant disadvantage of centralized identity management systems is the allocation of control to a single entity. As a result, the advantages of blockchain for identity management are being considered, with the blockchain providing inherit user control, trust, and transparency.

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How does Blockchain Impact Digital Identity Management?

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• Trust:

 

A distributed ledger stores the metadata used for communication in blockchain-based systems. As a result, the blockchain network employs consensus mechanisms to verify the authenticity of data via various nodes. The decentralized nature of blockchain is especially beneficial in the case of digital identities because it reduces the risks of data compromise.

 

 

•   Safety:

 

The most noticeable entry among blockchain identity management benefits is security. Blockchain technology is built with an inherent design for keeping data encrypted and immutable. Furthermore, cryptographic security in the blockchain is another notable feature of blockchain when considering its effectiveness in enhancing the security of identity management systems. Blockchain technology has the potential to improve digital identity security while also making it traceable. Furthermore, blockchain-based identity management systems address concerns about password security vulnerabilities.

 

 

• Ease of Use:

 

Blockchain technology for identity management may also result in process simplification for all stakeholders. Identity issuers may benefit from the automation of processes for issuing digital identities, resulting in an efficient reduction of time and manual efforts required for issuing identities. Identity verifiers can benefit from blockchain identity management by reducing costs and simplifying customer onboarding and data verification processes.

 

Owners of identities can benefit from the simplicity of blockchain-based identity management systems that move away from centralized data management. Identity owners or users gain full control over their identity. Users could also create their personalized identity data for use in social media or financial transactions. This is referred to as Self-Sovereign Identity.

 

 

• Sincerity:

 

Blockchain-based identity systems allow each identity to be maintained across multiple nodes in the network. Continuous data reconciliation, regardless of whether data is distributed across peer-to-peer networks, aids in keeping data up to date. Furthermore, the benefits of blockchain identity management highlight the absence of a single point of failure. Hackers may face formidable difficulties disrupting the integrity of a specific data set if there is no single point of failure.

 

 

• Confidentiality:

 

The final aspect transformed by blockchain in digital identity management is privacy. Regulators all over the world are advocating for the protection of citizens' sensitive and personal information. As a result, blockchain identity management solutions that combine digital signatures with blockchain encryption can provide built-in privacy. Attaching digital signatures to all user transactions ensures that they are not susceptible to tampering.

 

So, why do we consider the blockchain identity verification market when there are so many existing blockchain identity verification applications? The answer, of course, emphasizes the need to improve. Identity management solutions function perfectly well in the current environment. Existing identity management systems, however, have numerous significant drawbacks. To begin with, identity is a problematic concern because it is vulnerable to issues of fraud, loss, and theft in paper form. Digital identity, on the other hand, has the potential to reduce bureaucratic intervention while also increasing the speed of organizational processes. Digital identity solutions can improve interoperability among departments and other organizations.

 

On the other hand, storing digital identity on a centralized server may expose it to hacking attacks. When it comes to vulnerabilities, over 600 million pieces of personal information, such as credit card numbers or addresses, have been breached, hacked, or leaked by organizations.

 

Also Read | How does Facial Recognition Work with Deep Learning?

 

 

How can Blockchain help with Identification Challenges?

 

Blockchain has the potential to make a difference for the following reasons:

 

• It is a decentralized network in which all "nodes," or computers, have access to all of the network's data. Because this effectively turns each node into a ledger of all network records, we call it "Distributed Ledger Technology" (DLT).

 

• Each node can communicate with the others without the need for a central server. Even if a hacker destroys one server, the network continues to function.

 

• Security measures such as the previously mentioned decentralization, digital signatures using encryption, cryptographic hash functions, and consensus algorithms ensure the immutability of records.

 

• Smart contracts can be used on blockchain networks such as Ethereum. These are self-contained pieces of code that transfer cryptographic assets based on predefined criteria. Smart contracts are transparent and tamper-proof, with irreversible execution. They facilitate contract administration and, as a result, can improve organizational efficiency.

 

• Enterprise blockchain networks restrict access and use consensus algorithms that provide greater scalability. Hyperledger Fabric is an example of an "Enterprise blockchain."

 

Finally, the benefits of blockchain identity management can completely transform the digital landscape. Blockchain applications in digital identity management offer promising prospects for improving data security, transparency, and control. Improvements to existing identity management systems were unavoidable in the long run.

 

The issue of digital identities has never been more contentious than it is today, and all indications point to digital identities being a part of our future. There is interest, and both private and public sector ventures are investigating the development of resilient digital identity solutions. The majority of indicators point to decentralized digital identities as the eventual winners. National regulations, on the other hand, will influence how quickly digital identity solutions are adopted.

 

However, blockchain is already presenting future solutions for identity management. Currently, a few notable applications of blockchain-based digital identity management solutions are gaining traction. Let's see how far blockchain can push digital identity management in the future. Whatever the case, the debate over digital identity solutions and verified credentials only serve to highlight the various applications of blockchain technology. The numerous blockchain use cases are likely familiar to regular readers of this blog, but it is worth repeating.