In the past 13 years, blockchain technology has developed into a variety of applications in industries including banking, data, logistics, and security. However, Changpeng “CZ” Zhao’s visit to the island nation of Palau to launch its digital residency program gave the concept of leveraging blockchain’s immutable powers to ID a person’s fresh life.
The market for blockchain identity management is anticipated to increase by $3.58 billion between 2021 and 2025. The growing desire for digitization and identification solutions that preserve privacy are important drivers. As a result, a wide range of solutions, including nonfungible tokens (NFT), distributed ledger technology (DLT), and basic blockchain technology, have entered the market to meet this requirement.
Numerous government institutions started experimenting with the technology, with a strong emphasis on central bank digital currency (CBDC) and verifiable and irreversible user identification. This is because blockchain may be used for a wide variety of daily use cases.
Traditional IDs Problem
Governments have long placed a premium on accurately identifying — or ID-ing — a person to guarantee targeted delivery of services and benefits, among other criteria. This is still the case today. But as technology continues to progress, the general public now has the means to produce IDs that are aesthetically identical to the original. Authorities view blockchain technology as a fighting chance against fraud connected to ID theft and fakes since it can maintain immutable information.
It might be challenging to verify the authenticity of traditional paper-based IDs across several systems. History has demonstrated how people might gain unlawful access to a wide range of benefits by using false identification cards. But because of technology developments like blockchain, governments may now issue verified IDs and certificates while also maintaining the scalability, speed, and security of the identity management system.
Benefits of digital IDs based on blockchain
Although immutability dominates the elevator pitch for blockchain, the technology has several benefits over conventional software and paper-based systems. The ability to govern personal information is at the heart of the debate about blockchain’s advantages.
According to Martis, one of the main advantages of blockchain-based digital IDs is their self-sovereignty. This implies that instead of disclosing their entire identity to service providers, individuals are empowered by blockchain to disclose only certain or limited information with them.
Experts predict the emergence of a genuinely trustless system devoid of third parties as blockchain-based IDs eliminate the abuse of information. The merits of blockchain, which Gentry also emphasized, are verifiability, traceability, and uniqueness. She emphasized that because blockchain IDs are stored on the distributed ledger, they cannot be copied. All digital IDs can be tracked back to their owners’ accounts and validated on the blockchain, which is also useful for KYC, she continued.
Limitations of digital IDs based on blockchain
The most significant issues that threaten to obstruct the adoption of blockchain-based digital IDs must finally be resolved in order for them to become widely accepted. Lack of public education and a favorable regulatory environment are two obstacles that stand out in the present scene.
Gentry has seen a rapidly evolving situation in education as a result of popular discourse and the broad acceptance of technology. To assist nations and institutions in joining the blockchain network, pro-crypto policies will need to be developed with more industry involvement.
Martis echoed Gentry’s views on legislation and emphasized that, regardless of how decentralized, blockchain IDs will require verification or recognition by the issuing authority. This is the main restriction, in my opinion.
