Blockchain in Identity Management: Potential Use Cases

blockchain in identity management

Blockchain technology has the potential to revolutionize identity management, allowing individuals and organizations to store and manage personal data without a centralized authority securely. As a result, it can give people greater control over their information and more transparency in how it is shared and used. Furthermore, blockchain-based identity solutions eliminate points of failure, such as those associated with traditional systems that rely on a single entity for authentication and verification.

Reasons why we need Blockchain for Identity Management

The tools to construct reliable identity management systems are made possible by the ever-increasing sophistication of smartphones, advances in cryptography, and the introduction of blockchain technology. 

Digital identities are being revolutionized by these developments, allowing a whole new scope of authentication. Of particular interest is decentralized identifiers (DIDs) which would enable self-sovereign identity (SSI), a powerful means of control. With this knowledge, users are sure that their identities are maintained securely and no longer need to use traditional methods.

Banking the unbanked

It is a sad but actual fact that 1.1 billion people worldwide currently have no proof of identity, and of these individuals, 45% are among the planet’s poorest 20%.

The main barriers preventing these people from gaining access to identity are expense, cumbersome bureaucratic paperwork processes, lack of knowledge, and, most simply, a lack of access. However, many everyday activities are within reach with an identity in place. 

With over 60% of the world’s 2.7 billion unbanked population possessing mobile phones, it presents a range of potential possibilities for blockchain-based mobile identity solutions.

Blockchain solutions can better accommodate their needs as compared to traditional identification methods.

Data insecurity

The modern digital landscape is rife with the potential for harm to our personal information, and current methods of storing that information on centralized government databases have single points of failure that malicious actors can devastatingly impact.

Legislation and enterprise security measures to shore up these centralized databases remain viable approaches for protecting against breaches, but much more remains to be done if our most valuable personally identifiable information is going to stay secure.

Fake identities

It’s no surprise that our digital identity landscape is fragmented – with the overwhelming number of websites requiring a unique username or email, users constantly have to juggle identities to remain active on the various platforms.

Without any kind of standardized data used across these platforms, it can become difficult for users to gain access back to their accounts if needed. Worst of all, this vulnerability allows for the possibility of fake identities; if someone can easily create a false account and distort facts over different platforms, that could have severe consequences on society.

Online security becomes even more critical with potential threats like “fake news,” which, in the worst of cases, could sway public opinion and interfere with democratic systems.

How decentralized data identities (DID) work

In today’s digital world, a person’s online identity is becoming just as valuable as their real-world identity. Our online activity, combined with the information we leave behind, creates a personal digital identity that businesses, organizations, and other individuals pick up.

Data points like usernames and passwords, driver’s license numbers, online purchasing history, and date of birth help form this identity. 

Biometric, behavioral, and biographic models create a more detailed identification for sophisticated personal analysis. These models track our every move – from medical history to browsing habits – creating an eerily accurate picture of every user across the web.

Decentralized identifiers (DID) are a powerful way to protect online privacy, allowing individuals to keep control of their identities without providing personal information that could be collected and potentially exposed.

DIDs securely store individual IDs’ private keys, making it difficult for hackers and other malicious actors to tamper. 

Even better, each person can have multiple DIDs, from which they can manage their online presence without worrying that changes in one area will affect others.

For instance, someone could have different DIDs associated with activities such as gaming, banking, and even shopping – ensuring that their data remains secure no matter what platform they are accessing.

Each DID associate with a series of attestations, like verifiable credentials, from other DIDs that affirm a specific characteristic. The issuer digitally signs these credentials, allowing DID owners to store them on their own devices instead of relying on one single profile provider.

Furthermore, additional data such as web usage history and social media posts can be relevant to a DID based on context and its use. By using these attestations and data, DIDs allow individuals to take control of their digital identities in the most secure way possible.

How DIDs are secured and utility

Cryptography is an essential tool in establishing secure decentralized identities, as it allows for the authentication of the sender and encryption of messages. The system pairs two associated keys – a public key that is shared publicly and a private key that is known only to the owner.

The public key verifies that the sender is holding the paired private key and encrypts the message so that only someone with access can read it. By understanding how these associated keys work together, we can ensure proper authentication and encryption measures are in place for secure decentralized identities.

Service providers can verify identities safely and securely by pairing users with decentralized identities. 

The process works by having the user present a QR code with an attestation associated with their specific DID, which the service provider can verify for proof of ownership or control. The service provider can access the requested services without additional risk if these match. This new system of verifying identities ensures simplicity and security and establishes trust using more reliable means than ever before.

Blockchain use cases in identity management

Shyft network

The Shyft Network, a startup exploring blockchain-based identity solutions, offers an innovative way to give users more visibility, control, and reassurance when managing their data.

With the Shyft Network’s user-driven platform for digital identities, users can access information about organizations that require their data and trust that organizations are securely handling their personal information through the anonymization and KYC anchoring process.

Additionally, Shyft provides users with “creditability scores,” enabling organizations to validate each user’s reputation to effectively and accurately assess their trustworthiness. 

The system ensures a positive exchange of shared data, as individuals can receive compensation for sharing it. 

Daemon wallets

Daemon wallets provide an excellent service in the blockchain world, streamlining the process of verifying cryptocurrency transactions. As a result, these automated authorization systems are becoming increasingly common.

For example, games based on blockchain transactions, like Enjin, use daemon wallets to send and receive transaction requests. However, without a daemon wallet, users must manually sign every transaction using a crypto wallet, making for an infinitely more cumbersome experience.

It’s also worth noting that privacy-focused cryptocurrency Monero uses daemons to look out for new transactions and constantly notify wallet-holders. The increased usability provided by daemon wallets offers an array of services for users of blockchain technology both now and in the future.


Mastercard and Idemia have partnered to develop a groundbreaking Converged Card, a clever combination of a government-issued ID and payment credentials.

The primary use case is disbursing funds such as unemployment benefits, enabling governments to quickly and reliably reach those who need it most. This implementation of digital identity and payments technology is a fantastic display of creative engineering and stands to revolutionize how governments deliver financial aid in times of hardship. 

The Converged Card will be an invaluable asset for governments that employ it, effectively streamlining the relief process for those who need it.

Risks associated with using blockchain identities

Though blockchain identities present a slew of advantages, there are also some potential risks.

  1. Blockchain-enabled identity solutions have access to an unprecedented amount of data about each user, which could potentially be abused by those who control it.
  2. Blockchains are immutable and cannot be modified or deleted; any records stored on the blockchain will remain accessible and open to scrutiny forever.
  3. Since they rely heavily on cryptography, there is always a risk of hackers exploiting any vulnerabilities in the systems and gaining access to private information.
  4. Many governments still lack proper regulation regarding digital identities and blockchain-driven services, leaving users vulnerable to exploitation until laws catch up with technology.


The Shyft Network, daemon wallets, and Idemia’s Converged Card are just some of the many projects pushing blockchain-based identity solutions forward.

These solutions offer users much greater control over their data while providing organizations with increased trust and reliability when dealing with customer information.

Despite the risks associated with these technologies, it is clear that digital identities present a massive potential for innovation in finance and security.

As long as individuals remain vigilant and governments continue to regulate these services, we expect to see more widespread adoption of blockchain-enabled identity solutions soon.

Only time will tell what new possibilities will emerge from this technology.

Disclaimer. The information provided is not trading advice. Cryptopolitan.com holds no liability for any investments made based on the information provided on this page. We strongly recommend independent research and/or consultation with a qualified professional before making any investment decisions.


What are daemon wallets?

Daemon wallets are automated authorization systems that enable users to quickly and easily verify cryptocurrency transactions without needing to sign each transaction manually.

What is Decentralized Data Identities?

Decentralized Data Identities are digital identities stored on a distributed ledger, allowing users to stow and securely store their data in a decentralized manner.

What is self-sovereign identity(SSI)?

Self-sovereign identity (SSI) is a blockchain-based system that gives users complete control over their data and digital identities. It allows users to easily share only their data with other entities while providing verifiable credentialing and authentication services.

How does blockchain verify identity?

Blockchain verifies identity using cryptographic keys to store user data on a distributed ledger securely. The technology ensures that stored information is both immutable and secure while allowing users to share only the data they choose with other entities easily.

Damilola Lawrence

Damilola Lawrence

Damilola is a crypto enthusiast, content writer, and journalist. When he is not writing, he spends most of his time reading and keeping tabs on exciting projects in the blockchain space. He also studies the ramifications of Web3 and blockchain development to have a stake in the future economy.

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