A Complete Guide on Blockchain-Based Identity and Management

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“Blockchain Identity Management is a decentralized and secure system that, through a distributed trust paradigm, returns control to users”

Several sectors benefit from blockchain technology because of its transparency, security, and other aspects, which bring value to their company. As a result, it is poised to alter the existing state of identity management in a very secure way.

The current identity management system is insecure and untrustworthy. At every turn, you’ll be required to identify yourself using a variety of government-issued identification cards, such as a voter ID, passport, or Pan Card.

Privacy risks and data breaches arise when numerous IDs are shared. As a result, the blockchain can lead the way to self-sovereign identity via decentralized networks, which provide privacy and trust while securing and verifying identity papers. And where participants with permission sign identity documents.

Identity documents are frequently used by everyone, and they are shared with third parties without explicit agreement and stored in an unknown location.

Identity documents are required to apply for a loan, open a bank account, purchase a SIM card, or book a flight.

Because they are prone to data theft and hacking, government institutions, banks, and credit agencies are regarded as the weakest points in the present identity management system.

As a result, the blockchain has the potential to eliminate intermediaries while allowing citizens to control their identities autonomously. But, before we move to the blockchain, we need to know how identity management works and what the current process’s difficulties are.

Also Read: What Is Tokenization?

The Fundamentals of Blockchain

The peer-to-peer network concept of blockchain was first described as a peer-to-peer network that gives transparency to all network transactions. Because of its immutability and consensus, blockchain is favored because it eliminates the need for a central authority to oversee all transactions. Because data is the most valuable asset, users can take advantage of blockchain’s unique qualities, such as anonymity, decentralization, and transparency.

What is Blockchain?

DLT (Distributed Ledger Technology), often known as “Blockchain Technology,” is the technology underpinning decentralized databases that allow users to govern the development of data across entities via a peer-to-peer network, employing consensus techniques to assure data replication among nodes.

To put it another way:

Imagine a book (or ledger) that everyone could get for free, where whatever was written on its pages would remain there in perpetuity while also being cross-referenced with other books to ensure that what was written was legitimate and true; this is the essence of DLT.

What Was the Motivation for the Development of Blockchain?

There is a problem with digital assets. How can one prevent a valuable asset, such as digital money, from being copied and utilized by several people? This has always been a challenge with the adoption of digital currency.

Banks provide a level of trust between persons who are exchanging money. The bank takes money from person A and ensures that it is put in person B’s account. Both parties have faith in the bank’s ability to complete the transaction.

This was a problem if one wanted to build an ecosystem in which no single entity controls the flow of information, in which a user might transmit money directly to another user without going via a central institution. How could the participants in this financial system trust that the money had been transferred from A’s account to B’s? How might A avoid copying and spending this digital money twice (or three times)?

Satoshi Nakamoto, a person or entity known as Satoshi Nakamoto, solved this problem in 2008.

What Makes a Blockchain So Reliable?

The fact that each block where data is recorded cannot be modified is what makes blockchain safe. Only once the majority of the network has agreed may someone write to the blockchain. Meaning that if a piece of information is altered, all subsequent blocks must be modified as well, and 51 percent of the network must agree to the change. Because new blocks are formed every second, modifying them and the ones before them until we get to the one we want to change would take a lot of computational power. Changing a block will also result in the creation of a new branch of information that will be considered the source of truth while existing data will remain in a separate branch; this is known as forking.

Satoshi built the blockchain to solve the digital currency’s double-spend problem and to serve as a log or register, for Bitcoin transactions. Each user who uses Bitcoin as a medium of exchange operates as a node in the network, registering transactions on the Bitcoin blockchain. This makes it decentralized, as there is no need for a central authority, and everyone in the network can write on the ledger, allowing for network consensus without the use of a middleman. The more users in the network, the more difficult it is for a majority to collude to subvert the integrity of the blockchain’s information.

Users of this digital money could readily verify transactions and be guaranteed that funds were being transferred only once and not digitally copied eternally thanks to a public, immutable registry governed by teamwork and collective benevolence.

A blockchain is also a system with a high Byzantine Fault Tolerance (BFT). A Byzantine Fault occurs on decentralized systems when one user perceives the system to be working well while another perceives the system to be failing

What is Identity Management And How Does It Work?

Identity management is the administrative process of creating and maintaining user accounts for identification and authentication in an online service. Identity management is critical for ensuring that only authorized users have access to the online service. An identity management system’s life cycle is often divided into four stages:

  • Enrollment
  • Authentication
  • Issuance
  • Verification

There are three types of identities that are commonly used:

Central Identity:

The central service provider who wields the central power is known as the central identity. This identity is in charge of accepting and validating user credentials and data for storage. On a digital platform, the stored and validated credentials can be used to access online services. A DLT-based technique is another option, in which the User’s identity is verified using data stored in the DLT layer.

Federal Identity:

This service provider is in charge of distinguishing between the enrolment entity and other entities that use authentication to authenticate digital identity. They are in charge of maintaining customer data and are the main point of contact for a variety of online service providers.

Self-Sovereign Identity:

This is a sort of identity in which the user retains sovereignty over their data. This concept encourages people to be transparent and trusting of the online service. However, in order to maintain network control, users must follow specific regulations. These are “need-to-know” and “need-to-retain” scenarios, in which the user can control the information without the need of a middleman, preventing data theft and potential exploitation of sensitive user data.

The Requirement of Cryptography in the Identity Management System:

For public-key management, public key infrastructure is required. To appropriately map the keys between users and their public keys, PKI is required. Under the public key infrastructure (PKI), we can use one of two ways for authentication:

  • Centralized Approach: To guarantee secure authentication, the central authority controls the digital certificates and has the power to issue, revoke, or store the certificate at any moment.
  • Decentralized Approach: Users can nominate other trustworthy nodes to validate and issue these certificates in a decentralized fashion. This strategy is entirely predicated on the decentralized network’s users’ confidence. The Web of Trust is the name given to this trust system (WOT). The given certificate with the individual’s signature can be used to further verify the person.

The bi-directional approach of data verification is more secure and can eliminate many Sybil nodes totally. By combining cryptographic functionalities such as encryption, attribute signature, and authentication code, blockchain-based authentication gives better privacy and security.

How Does the Blockchain Identity Management System Work?

The ten commandments of self-governed identity can be implemented using the blockchain to tackle digital identification issues. The consensus process satisfies the requirement that reported attributes to be checked and trusted. Because blockchain is a tamper-resistant ledger, statements can be kept forever. The SSI approach is user-centric, implying that the user has complete control over their data. Complete control is provided through a chain structure that provides a chain per identity, such as the Trust chain or The Tangle. This chain structure could also indicate the presence of a concept that allows users to relinquish their right to be forgotten. Personal information is kept secret via claim blocks, and claim authentication ensures data security and minimization. Interoperability and portability are possible since the blocks can be shared with different platforms.

Security solutions and laws for personal data are being created and are already in place. The information exchanged between communication agents is vague, making it difficult to distinguish between what data is communicated and what access is truly allowed. Identity anonymity is affected by the degree of linkability of personal data [18]. It is vital to provide selective sharing of PII and track PII to satisfy personal data privacy issues. A subset of information sufficient to identify the identity holder within a collection of subjects such as a driver’s license, address, passport, name, date of birth, and so on is defined as personally identifiable information (PII).

“PPII is a subset of all full identity attributes, where complete identity is defined as the union of all attribute values such as bank name, part of an email, religion, partial name, and so on.”

Because personal information, such as PII, possible PII, and non-PII, is used to segment the digital identity into multiple settings. The situation and role influence the activation of identity features for identification and user authentication in various settings.

Based on the OAuth standard, many businesses have developed their own authentication system. Data privacy and management are now governed by standard body regulations all around the world.

The European Union is imposing GDPR to safeguard customers by giving them back control of their personal data. GDPR-compliant digital rights are linked with the SSI principle of user-centric identity to recognize the necessity for an individual to manage and control his or her own data. Access, consent, data reduction, portability, and existence are among the themes covered (right to be forgotten).

The Advantages of Blockchain Identity Management:

The use of blockchain for identity management has four major advantages:

  • Unique Identity: A unique ID number will be assigned to each user who joins the network and registers on the blockchain. This one-of-a-kind user ID is personal and unique to each user, and it comprises personal information about the user in an encrypted manner. To authenticate themselves with a third party on the blockchain ID management, users just need to share their unique user IDs.
  • Decentralized: The blockchain identity management system stores data in a completely decentralized manner. Data is not stored on a single centralized server, which could be vulnerable to data breaches or Sybil attacks.
  • Consent: Blockchain-based identity management does not rely on centralized storage of user data. As a result, data breaches and Sybil attacks are less likely to use this approach. Smart contracts are used by blockchain ID management systems to determine whether or not someone has access to certain information. It is difficult to modify data on a blockchain in this way. It instills trust in network users by ensuring that their data is kept safe and secure. Because the system is decentralized, there is no single point of failure. It means that even if one of the blockchain’s nodes is attacked, the system will remain operational.
  • Blockchain Environment: Anyone from anywhere in the globe can access a blockchain-based ecosystem. There are no geographical limitations, and users are not required to validate their identities.

The Business Impact of Blockchain Identity Management

We’ll go over some of the ways that blockchain identity management has impacted businesses:

  • User-friendly: The blockchain identity management system is both inexpensive and time-saving. Identity verification is inexpensive for both users and company owners.
  • Transparent: A distributed ledger is used to record transactions on a public blockchain. Anyone with internet access can connect to the network and view the transaction information.
  • Decentralized: Instead of storing all data on a single central server, it can be kept in several locations. Data loss and single points of failure are reduced as a result.
  • Ecosystem: Users can ask for the organization’s identity to be verified across borders.
  • Privacy: It ensures that all transactions on a blockchain network are kept private. Users can make transactions anonymously, and the details of these transactions are hidden.

Use-Cases of Blockchain Identity Management

We’ll go over three of the most common blockchain identity management use cases:

  • Lending or borrowing money (Loan): We understand how a person must go through a lengthy process to apply for a loan and have it approved. Multiple identity proofs and legal documents are required. Verification of these documents can take weeks. There’s always the possibility that someone will try to defraud you by using forged documents. In such circumstances, blockchain identity management solutions can assist with document organization and storage. Before being deposited on the blockchain, these papers are verified. As a result, the necessity to go through the verification procedure is greatly reduced.
  • Travel and Immigration: As we saw in the last example, a person may spend a significant amount of time having their paperwork validated. When it comes to travel and immigration, background checks and ID verifications can be done quickly and easily with blockchain. For a seamless verification process for tourists, we can store user data on the blockchain identity management system. It will streamline the process for both travelers and authorities.
  • Legal: When someone travels through the legal system, they may be asked to present proof of identities, such as proof of age, proof of address, or proof of occupation. People will no longer need to carry these documents around with them during legal proceedings thanks to blockchain identity management systems. This information can be stored in a decentralized data storage solution created by government and legal bodies. This data is available whenever there is a need for it. As a result, extensive background checks and ID proofs would be unnecessary.

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