What are the benefits of using digital identity with Blockchain in the future?

Home/Artificial Intelligence, Banking, Blockchain, Machine Learning/What are the benefits of using digital identity with Blockchain in the future?

What are the benefits of using digital identity with Blockchain in the future?

digital identity

If you are already familiar with the concept of Blockchain, you’ll know the essence of Blockchain essentially stands strong on the ground of easy transfer, verification, and security. But let us go back to the basics, just in case. 

Blockchain is a distributed ledger that provides a distributed database network resisting the interferences by middlemen and central authority. It is a chain of blocks, wherein every block consists of its own identity in the form of hashes. Hashes are a combination of letters that represent the data stored in them. One important point to consider here is that every succeeding hash has some elements of the previous ones. In this sense, every block in the blockchain is connected and a change in one will be reflected in all of them. 

In a nutshell, this is what happens, if somebody tries to change the data stored in it, all the nodes in the network get notified and thereafter can be approved by a mechanism known as ‘Proof of Work’. Coherently making the data immutable, more secure, with enhanced traceability.

Assuming we have a basic understanding of how blockchain works, let us now dive into how it can be integrated with digital identity.

What is Identity Management?

Identity and access management is maintaining records and databases that hold proof of authenticity. Basically the good old paperwork maintenance with certificates of birth, passports, government ID cards, Driver’s license, etc. The broader agenda is to collect data, make the required documents, and perpetuate. 

These are then, as the definition goes, used to prove the identity of a person. This is a  general requirement from registering for school to availing banking facilities.

But what are the wrongs in the current system?

Does it even need to be pointed out, the bureaucracy associated with these conventional methods takes a toll on the speed and transaction process? Keeping records in the back of an office is definitely not the solution. Some countries like India and Estonia have taken considerable steps in creating a digital identity. 

Since the data is exposed to a more susceptible outlet, it is prone to thefts, loss, and errors in the records.

The repercussion is, that when you need to modify your data, you have to change all your registered documents accordingly, which we all can agree is a hassle.

The current system paves the way to numerous loopholes, for instance in the US alone more than 200k certificates are forged every year. This raises serious concerns over the privacy and substantiality of the data that is provided. Blockchain offers very innate features that can help combat these aforementioned attacks in a positive manner. You get greater control over, who uses your data and how. It’ll help to avoid the unnecessary exchange of additional data. Let us dig a little deeper with that.

How Blockchain can become the game-changer?

Conventionally, whenever you need to get something done, from buying a car to securing a home loan, a lot of your details are required to be submitted to the manager and other intermediaries, some of which may not even be required. This unnecessary exposure to your personal details raises serious concerns and demands higher control over your data. 

Moreover, how do you trust the agent collecting your information to use it in the best of your interests and not pass on the same to others?

Now suppose, you do not have to avail of your personal information but just enough validation to approve your request. For example, confirming your credibility without actually exposing your actual income. 

This can be done by leveraging identity management in the blockchain.  This is known as zero-knowledge proof.  With this t, the information required to prove your credibility is not disclosed but your request goes through.

This is especially useful when you are not sure about the integrity of the verifying agent.

In reality, the verifying agent will have to trust the attesting party, or the attestor enough to validate the request. ANd the attesting party should agree to take responsibility for the same. Now institutionally if we look at that, it can be only implemented effectively, if the government is the actor or an organization affiliated with it. . The broader agenda is arduous as compared to the theory, for people to believe in the system. A trivial example could be AADHAAR in India, where it is used as integral identity verification. 

We are looking at something like that but not that silo. Identity management by blockchain will have diverse applications and an easier interface.

Let us take a look at the various sectors it could impact:

  • Government verification: The bureaucracy associated with government verification of data can be effectively eliminated if the process becomes integrated and streamlined.
  • Healthcare: Identity management if leveraged to the blockchain can help integrate and connect hospitals, clinics, and doctors available. It can also help to find doors and medicines across the vicinity.
  • Banking: The process of doing your KYC, every time you go for opening up a new account or a service in the same bank account or a different bank. The pain of repeating such lengthy processes slows down the speed of many transactions.
  • Education: In the education system, there have been many cases of fraudulent and forged certificates all over the world. This can be efficiently eliminated with a blockchain-powered identity management system.

Identity management in Banking 

The same question as mentioned above shall be answered in this section when one bank already has your information, why to go through the hassle of performing it all over again with another bank. If only there could be a system where it could be used to address this issue. We already have an established system to execute the same.

We can have a permission public system to build the infrastructure for a truly universal digital identity. Many startups are beginning to see the validity and the affinity of blockchain for this system. Gem, a startup in Venice is working towards creating a blockchain to hold the information for a particular field. Credits vision, a London based organization aims to create a blockchain of blockchains. 

Banks like CBW bank are starting to realize the adaptability of blockchain in the identity management system. Since banks already have a lot of information about their customers, as a basic requirement. They can with the government become authenticators. Therefore not exposing the details to a third party.

If a group of banks could share the KYC information of the customers, they could cut substantial costs on the software maintained for the same. Built on a distributed ledger system powered by key cryptography, these public keys could be used to authenticate the customer, and the data attached to that key could be used to authorize the request or transaction.

Blockchain can facilitate interoperability, flexibility, and speed of the banking processes, benefitting both parties. Real-time updates are also affiliated with blockchain, and therefore it doesn’t take a long period to reflect in your accounts. 

In addition to this, the revocation process could also be made seamless with blockchain. Revocation is basically updating, or deleting, or adding some new information to the blockchain. How would revocation work in blockchain? So suppose if you get married and change the last name, the blockchain will invalidate all the records made in your previous name and update the same with your new last name. You wouldn’t have to jump from office to office to change all your documents according to the same. 

Stepping stones

Blockchain induces very promising and applicated changes in the current system, but before adapting it completely certain issues have to be fixed with the same

  • The information that is put on the ledger should be induced in such a way that it is not prone to cyber-attacks and does not lead to any major leak of data.
  • The revocation process still needs some refinement as the data of an individual goes through changes very often (house address, number of children, etc.)
  • The institutions need to come to a consensus to adopt blockchain as a stimulator in identity management. For example, banks should be willing to share the KYC records when needed, with other banks.
  • There has to be strict integrity in order to have fair authentications. The attestors should bear the responsibilities bestowed upon them

Looking forward

We have come far away from the paradigm where blockchain was solely associated with fintech. It is not all bitcoin now, it has tremendously picked up pace in all the sectors from education to government institutions. But we still have a long way to go to make it widely acceptable and convincing. Identity management with blockchain can reduce a load of paperwork and eliminate fraudulent practices in all the sectors, making it speedy, and giving a seamless experience to the customers. There still exist many obstacles before having it as a standard way of doing things, but researchers in the field and blockchain experts are consistently working towards giving better results with blockchain


By |2020-10-21T10:21:22+05:30September 25th, 2020|Artificial Intelligence, Banking, Blockchain, Machine Learning|Comments Off on What are the benefits of using digital identity with Blockchain in the future?

About the Author:


Get to know us.


Say Hello !