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How Can Blockchain and NFTs Decentralize Your Digital Identity on Web3?


Main Takeaways

  • Decentralized digital identity is a framework that prescribes storing individuals’ personal data in a single non-custodial identity wallet. Thus, they can have full control over their digital identity rather than depending on centralized entities to store and handle it.

  • Using blockchain for maintaining a decentralized digital identity can provide robust security and privacy, effectively protecting user identities from data breaches and theft. 

Today, individuals’ personal data that make up their digital identity are often stored in a centralized way and linked through devices, apps, and third-party services. Users do not have control over what personal data they want to share and how they want to share it, making it potentially more vulnerable to data breaches and cyberattacks. 

The arrival of Web3 has changed the way we interact with each other online. Blockchain-based applications run independently without intermediaries, creating a decentralized internet where an individual can be the sole owner of their data. Web3 users can customize their profiles and store personal data in a singular account that will allow them to use it for everything online, from accessing social media platforms to logging in to their crypto wallets.

What Is Decentralized Identity?

Decentralized identity is an emerging ideology that suggests that identity data should only be held by the individual it represents. Users can generate and control their digital identities without depending on third-party service providers. Specifically, decentralized digital identity (DDID) is a decentralized system that aims to reconstruct the current centralized identity management using blockchain technology. 

For example, a standard for digital credentials called Verifiable Credentials (VCs) can tokenize a user’s identity to enable storing it in a non-custodial wallet. Users can release all or certain aspects of their identity and personal information to third parties, such as the government, banks, or schools, at their discretion. It will also make storing information easier in a single source. Another example is self-sovereign identities (SSI), which focus on verified and authentic credentials linked to real-world verification data managed in a decentralized way. 

How Does Decentralized Identity Work on Web3? 

Decentralized identity gives users full control over their personal data online. On Web3, users from all backgrounds can express themselves and interact in new ways using tools like NFTs and blockchain. They can be vital in driving and ushering users into a new world of freedom and empowerment. Everyone can create a unique NFT avatar that represents them, and every NFT contains a unique identifier that cannot be replicated. This allows for safer interactions in digital communities.

Typically, decentralized identity utilizes some forms of decentralized storage to hold an individual’s decentralized identifiers (DIDs), such as a non-custodial identity wallet. It could be an app or a browser extension wallet that allows users to create their decentralized identity and manage third-party service providers’ access to it. In this design, users are the sole owners of the respective public and private cryptographic keys. Some wallets would make use of other authentication methods to secure users’ data. For example, self-sovereign identities (SSIs) link users’ credentials to real-world verification data like biometrics and store them on the blockchain. This can also help users self-manage their digital identities without depending on third parties. More importantly, SSIs store the information within non-custodial wallets that are solely controlled by users to ensure the security of personal data. 

To verify identity in the metaverse, users can sign the transaction with their private key or biometric data on applications that allow using decentralized identity for authentication. The service provider would then use the decentralized identity the user shared to look for the matching unique DID on the blockchain.

What Are Soulbound Tokens (SBTs)? 

Proposed by the Ethereum (ETH) co-founder Vitalik Buterin, Soulbound tokens (SBTs) are non-transferable NFTs unique to an individual that are permanently bound to digital wallets (Souls). SBTs work like achievement badges and can be used to store different personal information, such as CVs, education credentials, club memberships, etc. They are publicly traceable, making it almost impossible to display fake credentials. For example, a Web3 company hiring software developers can use SBTs to validate a candidate’s certifications, or an artist can issue NFTs from their Souls as a validation for their artwork.

With SBTs, users can unlock benefits that transform how we view social identities in real life. These tokens can serve as a way to prove who someone is and confirm their reputation, potentially building trusted relationships in decentralized environments. 

The emergence of SBTs suggests that Web3 can be more than financialized assets. They represent users’ credentials, potentially adding a sense of genuine human relationships and communities to the digital world. For one, SBTs describe the qualitative traits of an individual, like their achievements, capabilities, memberships, etc. They can be the building blocks to reshape how humans interact with each other on the blockchain, like a combination of resumes and online social media profiles. 

Recently, Binance announced that it is all set to issue Binance Account Bound (BAB), the first-ever SBT built on the BNB Chain. It will be an opt-in feature that enables Binance users who have completed Identity Verification to mint their BAB directly on their wallets.

Benefits of Using Decentralized Identity

Decentralized identity gives users full custody over their digital identity rather than depending on a centralized server login. It removes the need to enter a username and password with an identity wallet so that users can exercise control over their metaverse identity and biometric data more easily in the Web3 environment.

With decentralized identity, users can control which part of their data to share with which service providers. This puts the power back in the hands of users, making it potentially effortless to manage their data with a single identity wallet.

Using blockchain for decentralized identity also provides robust security and privacy. Data can only be unlocked and viewed with the correct digital signatures, protecting users from hacks and identity theft. Decentralized identity data stored on a blockchain is immutable and less vulnerable to attack than those held on centralized servers. Data cannot be deleted or edited once recorded on the distributed network, so no external entities can modify users’ records.


Decentralized digital identity is one of the latest technologies that could help push the Web3 revolution forward. Users can easily access all their accounts without having to remember multiple usernames and passwords and enjoy enhanced security and data protection in the metaverse. At the same time, organizations can provide personalized services to users while preserving privacy. It might emerge sooner than expected, with start-ups and established businesses already embracing the technology, such as Microsoft’s new product Entra which lets users verify, secure, and manage all types of identities and access requests. However, implementing decentralized identities on a global scale will not happen overnight and requires a joint effort of cooperation and coordination among businesses and governments.