Decentralized Identity Explained

What is decentralized identity?

Centralized identity management solutions enable authentication capabilities like single sign-on (SSO) and can help organizations scale their identity and access management (IAM) practices. However, centralized identity management comes with risks and trade-offs. For example, threat actors frequently target centralized authorities and attempt to compromise sensitive data. Additionally, centralized authorities create a single point of failure and limit users’ control of their personal data. 

Decentralized identity (DCI) often uses distributed ledger technologies (DLT) like blockchain for authentication and can help address challenges related to centralized identity management. DCI supports authentication that is decoupled from centralized authorities that store personally identifiable information (PII) in a centralized database. 

However, DCI comes with downsides. Decentralized identities can create scaling and complexity challenges. Whether DCI is right for your use case depends on context; there is no one-size-fits-all answer. With that in mind, this article provides an overview of DCI, examining common use cases, benefits, and implementation challenges.

Decentralized identity aims to improve security by reducing reliance on central authorities, but it does not eliminate identity-based attacks. Threat actors still exploit identity systems via social engineering, compromised credentials, and session hijacking. Organizations need a layered approach to identity security—combining decentralized identity with real-time identity protection.

Core concepts of decentralized identity

DCI bypasses the need for a central authority, instead using standard cross-platform frameworks to generate unique user identities and credentials without relying on user PII. These identities are often stored by the user on a blockchain, which is a cryptographically backed distributed ledger, ensuring that no single entity can compromise the entire system. 

Let’s review the core components of DCI that support decentralization and personal data privacy.

Decentralized identifiers

Like any identity solution, DCI requires unique user identifiers. A decentralized identifier (DID) is a unique alphanumeric string associated with an identity in a DCI implementation. DIDs are user-controlled and verifiable without a central authority. By design, DIDs do not include personal data such as phone numbers, email addresses, or names. 

Self-sovereign identity

Self-sovereign identity (SSI) is a specific implementation of decentralized identity that enables users to have full control over their digital identity and data. Since the user determines what information can be accessed at any point in time, it enhances user trust and alleviates privacy concerns by eliminating the need for third-party data storage. SSI is a subset of DCI, but is not the only way DCI can be implemented.

Blockchain technology

Blockchain is a distributed, immutable, and public ledger that allows secure, tamper-proof storage and verification of user identity. The user's public DID is stored on the blockchain, which acts as a single source of truth for the user's identity. Most DCI solutions store credentials off-chain in the user's wallet, but some implementations experiment with on-chain verification methods. When the user needs to prove their identity, they can share cryptographic proof derived from their credentials over the blockchain. As the ledger is immutable and distributed, anyone can verify the authenticity and integrity of the credentials without accessing the actual credentials.

Identity wallets

An identity wallet is a secure digital repository designed to store user credentials securely and allow the sharing of credentials without revealing any sensitive information. It allows users to prove who they are in a privacy-preserving manner without trusting a central identity to store these credentials. 

Cryptographically verifiable credentials

An identity is only useful if it is verifiable. In DCI implementations, cryptographically signed credentials enable proof of identity or other attributes (such as employment status or age). For example, a person may use a government-issued ID or passport that follows the World Wide Web Consortium (W3C) data model to produce evidence on demand while avoiding the storage of sensitive personal data on a blockchain.

Real-world decentralized identity use cases

Fundamentally, DCI implementations empower users to control their data and protect PII. Common real-world DCI use cases include: 

• Digital onboarding: Applications and services can simplify their onboarding processes by relying on verifiable credentials to confirm user attributes such as age or citizenship. In addition to preserving the privacy of users, it reduces the burden on organizations to manage a secure processing and storage method for sensitive user documents. 
• Access control: Cryptographically signed credentials ensure the authenticity of credentials, reducing the possibility of account takeover attacks due to password leaks. As a result, replacing traditional authentication options with cryptographic proof of identity can help digital applications improve their security posture, minimize revenue loss, and increase user trust. 
• Cross-border verification: Physical documents contain sensitive PII and face theft and tampering risks. As an alternative, private organizations and government services can use DCI to identify individuals for international travel, visa issuance, and remote work, thereby reducing the reliance on physical documentation.

Primary benefits of decentralized identity

DCI gives users more control over their identity while reducing privacy concerns and the risk of data breaches. Let’s consider four primary benefits of DCI in practice. 

#1: Enhanced privacy and user control

DCI lets users take full control over their data by eliminating reliance on a central authority for credential storage. This gives the user peace of mind about their privacy and data security, as credentials are instead stored within a cryptographically encrypted, distributed, and tamper-proof system. 

#2: Reduced risk of data breaches 

With the number of data breaches reported by CrowdStrike increasing in recent years, organizations are finding it more difficult to secure their data storage systems against evolving data threats. A data breach of the central authority impacts organizations that rely on it for authentication, potentially resulting in loss of revenue and user trust. Switching to DCI reduces this risk as the system is no longer reliant on the security of a single data storage provider. 

#3: Interoperability

The core components of DCI—such as DIDs and verifiable credentials—are based on the widely adopted W3C standards. This standards-based approach enables seamless cross-platform integrations and interoperability. 

#4: Alignment with zero trust principles 

In traditional credential storage systems, users need to trust the central authority, increasing the risk of a data breach if the central authority is compromised. DCI aligns with zero trust principles as it assumes no entity is trusted by default. 

Decentralized identity challenges and limitations

DCI is an emerging technology that has yet to be widely adopted and poses scalability and compliance challenges. In this section, we’ll explain the common challenges and limitations facing DCI implementations today. 

Adoption barriers 

Despite its benefits, DCI adoption is low because existing centralized identity providers are reluctant to change. Organizations may also face significant logistic or regulatory hurdles when transitioning their existing systems to a new identity storage solution. 

Scalability concerns

As user numbers increase, distributed ledgers can suffer from latency issues due to network congestion and slow identity resolution. Additionally, cryptographic operations are computationally intensive and can struggle to meet the high throughput requirements of large organizations with millions of users. 

Regulatory and compliance issues 

As regulatory compliance requirements and privacy laws such as GDPR and CCPA continue to evolve, it can be challenging to ensure DCI systems remain compliant. While centralized identity providers have dedicated teams of experts to handle these regulation changes, DCI solutions require a coordinated and collective effort from multiple organizations to maintain the system. 

User experience

DCI can introduce a steep learning curve for users who might not be familiar with new technologies or processes such as identity wallets and cryptographic keys. Additionally, it can be challenging for some users to manage their recovery keys and wallets securely, with user accounts becoming irrecoverable once these credentials are lost.

How CrowdStrike provides comprehensive identity protection

Traditional centralized identity management solutions leave users susceptible to data breaches and identity theft as they require them to trust a central authority with their PII data. Decentralized identity reduces this risk by giving control of identity data back to users, but comes with trade-offs related to complexity and management. Modern organizations need a comprehensive identity solution that scales while limiting data risk. 

CrowdStrike Falcon Identity Protection provides comprehensive identity and endpoint security solutions, enabling organizations to secure user identities in modern environments by: 

• Enabling real-time protection against identity attacks.
• Integrating seamlessly with zero trust systems to prevent lateral movement.
• Providing advanced monitoring for authentication, authorization, and access events to detect anomalous user behavior automatically.
• Complementing DCI efforts by securing both traditional and modern identity systems.