Moving toward a decentralized digital identity – what’s changing?
In the next few years, the EU expects 80% of citizens to use digital identity for public services. While moving to a decentralized digital identity framework will provide opportunities for every industry, companies must anticipate the changes.
On November 9, the EU announced that it reached a final agreement on the regulation introducing EU Digital Identity Wallets. The regulation entails that all EU citizens, residents, and businesses will be offered the possibility to have an EU Digital Identity Wallet to access private and public online services.
The Wallet will be able to store a user’s digital identity and will allow the user to open bank accounts, make payments, and hold digital documents such as driving licenses, medical prescriptions, and travel tickets.
For citizens, the EU Digital Identity Wallet will offer an easy and practical alternative to online identification while giving complete control over their personal data, the EU said in its press release. The tool aims to empower users, put them in control of their data and privacy, and enhance security.
Decentralized digital identity
The EU Digital Identity Wallet uses a decentralized identity system by relying on public key infrastructure (PKI) cryptography to secure and manage identity. Due to its distributed nature, decentralized identity is more resilient against identity theft attempts and other attacks.
Currently, users depend on multiple third parties to manage their data: think about Google, Apple, Facebook, and the Dutch DigiD. By moving to a decentralized digital identity system, all of these systems can be combined into one identity in which both public and private service providers can participate.
Opportunities
The move to a decentralized digital identity framework will provide opportunities for every industry. In the public sector, using digital identity will simplify citizens’ access to government portals, while in health care, securely accessing and sharing medical data will improve. In financial services, using digital identity can lead to enhanced AML/KYC processes and a decrease in fraud.
In the next few years, the EU expects 80 percent of citizens to use digital identity for public services. Yet, steps need to be taken to prepare for a decentralized digital identity system. On a national level, national legislation will need to be prepared, such as on the use of cloud, blockchain, standards, and privacy guarantees.
In the near future, there will also be a demand for identity brokers, attribute issuers, and digital identity technology providers. An example of a provider is FastID, which has developed biometric identification technology.
“A decentralized identity based on biometrics is better for security and data privacy,” said Albert van Veen, CIO of FastID. “Traditional systems with badges, cards and PIN codes are widely accepted, but very weak in terms of security.”
A cost-efficiency argument can also be made. “I have worked with many centralized databases that have always caused a hassle, especially when biometrics are involved,” van Veen says. “It’s unsafe, it takes a long time, and dealing with database suppliers can be challenging. On the contrary, a decentralized identity is cheap and easy to implement.”
Implementation
While the final agreement on the regulation marks an important step in the process, preparations for the implementation will take time. However, companies must start preparing for the obligation to accept EU-recognized identities.
For example, the regulation specifies that all large online platforms such as Facebook, Instagram, TikTok, Amazon, and X will have to accept the Digital Identity Wallet as an authentication method. Yet, seeing how fast the digital world can move, smaller online platforms will undoubtedly be confronted with changes, too.
