Main conclusions

• Decentralized digital identity is a system in which users' personal data is stored in a single non-custodial identity wallet. This way, users can have full control over their digital identity, rather than relying on centralized services to store and maintain information.

• Using blockchain to support decentralized digital identity can provide adequate security and privacy, effectively protecting the user's identity from data leakage and theft.

Nowadays, personal data that makes up a person’s digital identity is often stored centrally and linked through devices, applications and third-party services. In this model, users have no control over what personal data they choose to share and how they choose to share it, making them potentially more vulnerable to data breaches and cyberattacks.

With the advent of Web3, the process of interaction on the Internet has changed. Blockchain-based applications operate independently and without intermediaries, creating a decentralized Internet in which the user can be the sole owner of their data. Web3 users can customize their profiles and store personal data in a single account, which can be used for everything from accessing social networks to logging into crypto wallets.

What is decentralized identity

Decentralized identity is a new ideology in which identity data should only be kept by the person it represents. Users can create and control their digital identities without having to rely on third-party service providers. Decentralized Digital Identity (DDID) is a decentralized system that seeks to transform current centralized identity management using blockchain technology.

For example, a digital credentials standard called Verifiable Credentials (VC) allows identity data to be stored in the form of tokens in a non-custodial wallet. Users may disclose all or some aspects of their identity and personal information to third parties, such as government, banks or schools, at their discretion. At the same time, having a single source makes data storage easier. Another example is sovereign identity (SSI), which consists of verified and authentic credentials linked to real verification data and managed in a decentralized manner.

How decentralized identity works in Web3

Decentralized identity gives users full control over their personal data on the Internet. On Web3, people from all walks of life can express themselves and interact in new ways using tools like NFTs and blockchain. They can become the decisive factors that open the door to a new world of freedom and enormous opportunities. In it, anyone can create a unique NFT avatar that will represent them and contain a unique identifier that is protected from counterfeiting. All this makes interaction in digital communities safer.

Typically, decentralized storage, such as a non-custodial identity wallet, is used to store the user's decentralized identifiers (DIDs). This can be a wallet in the form of an application or browser extension that allows users to create their decentralized identity and manage access to third-party service providers. In this case, users are the sole owners of the corresponding public and private cryptographic keys. Some wallets use other authentication methods to protect your data. For example, sovereign identity (SSI) links user credentials to real-world verification data, such as biometrics, and stores them on the blockchain. Thanks to this, users can control their digital identities themselves without the participation of third parties. More importantly, SSI stores information in non-custodial wallets that are controlled solely by users, ensuring the security of personal data.

To verify identity in the metaverse, users can sign a transaction with their private key or biometrics in applications that allow decentralized identity to be used for authentication. The service provider will then use the decentralized identity shared by the user to find the corresponding unique DID on the blockchain.

What are Soulbound Tokens (SBT)

Soulbound tokens (SBT) were proposed by one of the founders of Ethereum (ETH), Vitalik Buterin. They are non-transferable NFTs that are unique to a specific person and are forever tied to a digital wallet (Soul). SBTs are similar to achievement badges and can be used to store various personal information such as resumes, educational credentials, club memberships, and so on. They can be tracked publicly, making it almost impossible to fake information. For example, Web3, a company hiring software developers, could use SBT to verify a candidate's certifications. Or an artist can issue an NFT from their Soul wallet to confirm that a particular work belongs to them.

With SBT, users can gain benefits that will change the way we think about social identity in real life. Such tokens can verify a person's identity and reputation, which helps establish trust in decentralized spaces.

The emergence of SBT suggests that Web3 may be more than just a medium for financial assets. Such tokens provide information about users, thereby giving a sense of real human relationships in the digital world. After all, SBTs describe the qualitative characteristics of a person: his achievements, abilities, membership in any organizations and much more. They could change the way people interact on the blockchain by combining resumes and social media profiles.

Binance recently announced that it is ready to release Binance Account Bound (BAB), the first-ever SBT on the BNB Chain. This will be an additional feature that will allow verified Binance users to create BAB directly in their wallets.

Benefits of Decentralized Identity

Decentralized identity gives users complete control over their digital data and allows them to be independent from a centralized server. With its help, they do not have to constantly enter a login and password, which makes it easier to manage identity and biometric data in the metaverse and Web3 environment.

With decentralized identity, users can choose how much information to share with third-party service providers. This puts control back into the hands of users, simplifying data management through a single identity wallet.

Using blockchain for decentralized identification also ensures proper security and privacy. Data can only be unlocked and viewed with the correct digital signatures, protecting users from hacking and identity theft. At the same time, decentralized identification data stored on the blockchain is immutable and less vulnerable to attacks than data on centralized servers. Once recorded on the distributed network, information cannot be deleted or edited, so no external entities can modify user records.

Conclusion

Decentralized digital identity is one of the emerging technologies that can play an important role in the Web3 revolution. With this identification, users can easily log into all their accounts without remembering multiple logins and passwords. It has the added benefit of increased security and data protection in the metaverse. At the same time, organizations can provide personalized services to users without compromising their privacy. Decentralized digital identity may be coming sooner than expected: startups and established companies are already working on this technology. For example, Microsoft's new Entra product allows users to verify, secure, and control all types of identities and access requests. However, the adoption of decentralized identity on a global scale will not happen overnight—it requires a concerted effort of collaboration and coordination between organizations and governments.