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Blockchain Identity Management: Enabling control over Identity

“Blockchain Identity Management offers a decentralized and secure solution that puts users back in control via a distributed trust model”

The blockchain technology benefits several industries with transparency, security and many more features, adding value to their businesses. Thus, it is all set to transform the current working of identity management as well, in a highly secure manner.

The existing identity management system is neither secure nor reliable. At every point, you are asked to identify yourself through multiple government-authorized IDs like Voter ID, Passport, Pan Card, etc.

Sharing multiple IDs leads to privacy concerns and data breaches. Therefore, the blockchain can pave the path to self-sovereign identity through decentralized networks, which assures

where identity documents are secured
where identity documents are verified
where permissioned participants endorse identity documents

Everyone uses identity documents regularly, which are shared with third parties without explicit consent and stored at an unknown location.

Whether a person needs to apply for a loan, open a bank account, buy a sim card, or book a ticket, identity documents are used.

Government institutes, banks, and credit agencies are considered the weakest point in the current identity management system as they are vulnerable to theft and hacking of data.

Thus, the blockchain comes with the possibility of eliminating the intermediaries while allowing citizens to manage identity independently. But before moving to blockchain, we need to understand how identity management works and what are the challenges in the existing process.

In this article, we will answer the following questions:

Let’s begin by understanding the challenges in the existing identity management system.

What are the challenges that exist in the traditional identity management system?

The present identity management system faces the following four major challenges:

  1. Identity theft
  2. Combination of usernames and passwords
  3. KYC onboarding
  4. Lack of control

Identity theft

People share their personal information online via different unknown sources or services that can put their identification documents into the wrong hands. Also, as online applications maintain centralized servers for storing data, it becomes easier for hackers to hack the servers and steal sensitive information. According to the Breach Level Index, 4,861,553 records are stolen every day, accounting for:

  • 202,565 records every hour
  • 3,376 records every minute
  • 56 records every second

The breach statistics indicate how quickly a hacker can steal personal or other confidential information.

A combination of usernames and passwords

While signing up on multiple online platforms, users have to create a unique username and password every time. It becomes difficult for an individual to remember a combination of usernames and passwords for accessing different services. Maintaining different authentication profiles is quite a challenging task.

KYC Onboarding

The current authentication process involves three stakeholders, including:

  • verifying companies/KYC companies
  • users
  • third parties that need to check the identity of the user

The overall system is expensive for all these stakeholders. Since KYC companies have to serve requests of different entities such as banks, healthcare providers, immigration officials, etc., they require more resources to process their needs quickly. Therefore, KYC companies have to charge a higher amount for verification, which is passed to individuals as hidden processing fees. Moreover, third-party companies have to wait for a long time to onboard the customers. 

A global survey of “Know Your Customer” challenges found that global annual spending on KYC is estimated as the US $48million.

Lack of Control

It is currently impossible for users to have control over personally identifiable information (PII). They do not know:

  • how many times PII has been shared without their consent
  • where all their personal information has been stored

As a result, the existing identity management process requires an innovative change. Using blockchain for identity management can allow individuals to have ownership of their identity by creating a global ID to serve multiple purposes.

Blockchain offers a potential solution to the above challenges by allowing users a sense of security that no third party can share their PII without their consent.

By using blockchain:

  • a platform can be designed to protect individuals’ identities from breaches and thefts
  • people can be free to create self-sovereign and encrypted digital identities
  • the need for making multiple usernames and passwords can be removed

Let’s understand how a blockchain identity management system would work.

How does the blockchain identity system work?

To understand how a blockchain identity management system works, we should know about the technical components involved in the process.

There are five technical components and interfaces that could be involved in the Blockchain based Identity Management Process:

  1. Native Android/iOS App for individuals.
  2. Native Android/iOS App for third-party companies/verification companies.
  3. Inter-Planetary File System to store the user’s PII.
  4. Microservices programmed using Node.JS.
  5. Permissioned Blockchain Component.

Now, let’s understand how could Blockchain Identity Management work.

Currently, people need the right way to manage their identity than paper-based documents. The app for Blockchain Identity management will help people to verify and authenticate their identity in real-time.

Step 1: Installation of Mobile App

An individual will first have to download the mobile app from the play store or app store to establish his/her identity.

After downloading the app in mobile phones, a user will create a profile on the app.

Once the profile is created, the user will get the unique ID number, which will help organizations access the user’s identification documents.

Step 2: Uploading the documents

After the user gets ID number, they need to upload the government-issued IDs on the app that will be saved in the IPFS with hashed addresses stored in the blockchain.

The app will extract the personal information from these IDs to do self-certification of his/her details.

The user will own their data. It helps users decide the information to be shared with organizations. Without the user’s consent, no data can be shared with any identity seekers.

Step 3: Smart contracts generating trust score of the person

Suppose there is a score that determines the trustworthiness of a person.

Smart contracts containing the business logic can generate a trust score for a user from the information provided by them while creating a self-sovereign identity.

Step 4: Third-party companies requesting access 

Every time any company will have to access specific details of a person for authentication purposes, a notification will be sent to the individuals owning the identity.

Once the user allows the companies to access their details, third parties can use the identifiable information for authenticating a person. Also, individuals will be able to trace the purpose for which their PII has been used.

Blockchain does not store the user’s data or information. Instead, the transactions made between identity holders and companies will only be recorded on the blockchain.

For example, if an immigration authority verifies the person’s identity via an app, then that transaction will be added on the blockchain and visible to all the connected nodes.

Let’s discuss the example in more depth.

Suppose a person named Alex needs to authenticate himself to apply for study abroad programs. Thus, the education center can validate his identity quickly because of the blockchain-enabled identity management app.

Alex will provide the unique ID number to the center, enabling them to submit the request for accessing information. After he validates the request, the education hub can check his documents, and the transaction will be recorded on the blockchain.

Note: All these PII (personally identifiable information) will be stored on the phone backed by IPFS in an encrypted form.

As we mentioned above, smart contracts can trigger the business rules and generate the trust score for every individual using blockchain identity management. But what exactly does it mean? How will trust score work?

We will explain how the trust score can help an organization verify the user’s authenticity.

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What is the trust score? How does it work?

Higher will be the trust score, higher will be the trustworthiness of an individual.
The trust score generated by Smart Contracts can help organizations validate users’ identities in real-time.

A user can achieve a higher trust score by uploading multiple documents on the app.

Based on a user’s trust score, it can be inspected whether it’s a suspicious account or a valid account. Moreover, identity should be used regularly to maintain or enhance the trust score.

A user can be considered a newbie for the first six months after sign up, giving them the time to create the trust score. During that interval, they will have to upload the required information.

For example, if the Bank of America needs to check the person’s authenticity for granting him a loan, they can check the user’s trust score. It can give the bank an insight of the trustworthiness of an individual, saving time and money.

Three factors that can help in building a trust score are

  1. Uploading of documents
    The more identity documents a user uploads, the more will be the trust score. It is the primary factor for newbies to start generating their scores.
  2. Information should match
    The system verifies if the fields like name, date of birth, etc. are the same across the uploaded documents or not. More positive matches will enhance the trust score.
  3. Regular use
    Users might require using the system regularly to keep the trust score improved and maintained.

Three factors that may cause the trust score to drop are:

  1. When relevant documents are not uploaded within the system, it will drop the trust score.
  2. If a user does not provide specific organizations access to verify identity, it will lower the trust score.
  3. Frequent changes in their personal information may drop down the trust factor, considering the person as a suspicious user.

What are the benefits of the blockchain identity management system from the user’s point of view?

From the user’s point of view, there are four benefits of using blockchain identity management:

  • Unique ID
    Each user who registers on the blockchain identity management system will get a unique identity number. The user’s unique ID number consists of all personally identifiable information in an encrypted format stored on their device backed by IPFS. Users can share unique IDs with any third party to authenticate themselves directly through blockchain identity management.
  • Consent
    A blockchain identity management system will not store any user’s information. Moreover, the system uses smart contracts to enable controlled data disclosure. Thus, data manipulation is not possible on the blockchain. An identity management system linked with blockchain is highly secure for identity holders as well. No transaction of the user’s information can occur without the explicit consent of the user. It makes the user control their personally identifiable information.
  • Decentralized
    No personal identification documents of the users will be stored in a centralized server. All the documents that identify users get stored on their devices backed by IPFS, making them safe from mass data breaches. Using the Blockchain identity management backed by IPFS doesn’t allow any hacker to steal identifiable information. Since the system will be decentralized, there will be no single point of failure (SPOF). A single point of failure represents that part of the system – if it fails, the system will stop working. Therefore, the absence of SPOF ensures that the system will never compromise.
  • A universal ecosystem
    Blockchain identity management doesn’t set any geographical boundaries. So, users can use the platform across borders to verify their identity.

What will be the impact of using blockchain identity management on users and businesses?

  • User-optimized
    The blockchain ecosystem is highly cost-effective and time-efficient. Moreover, the cost incurred in verifying identities gets lowered both for businesses and users.
  • Transparent
    Everyone connected to the network can trace the transactions recorded on the blockchain. Verifiable authenticity exists for every made transaction.
  • Obscure
    It ensures the privacy of the transactions for the parties connected to the blockchain.
  • Decentralized
    Instead of storing the data on a single centralized server, decentralization enables the distribution of information on every node in the network, reducing the chances of a single point of failure.
  • Universal Identity
    Users can ask the organization to verify its identity across the border as well.

What are the various use cases of the blockchain identity system?

Here, we have discussed the following five use cases of blockchain identity management:

Applying for a loan
Imagine you have to apply for a loan or open a new bank account. Traditionally, you have to submit multiple identity documents for completing the entire manual verification process, taking weeks to process the loan or credit. But a blockchain-based identity could fasten the process by sharing pertinent information quickly. Since a user may not have to maintain different IDs, the cost and efforts could also be reduced.

Apart from carrying a passport, a traveler also needs to take along a specific set of documents for clearance and security checks at the airport. From booking a ticket to passing security checks, boarding a flight, and moving to a new country, an individual can present a universal blockchain-based identity throughout the entire process. A person with a decentralized identity would not have to undergo complicated security checks and other procedures. So, blockchain identity management can make the process more streamlined for both travelers and authorities.

Legal Procedures
While undergoing any legal process, a user may have to submit different identity proofs like:

  • proof of age
  • proof of occupation
  • address proof, etc.

With the help of blockchain identity management, people might not have to carry multiple documents wherever they go. Legal entities, as well as government bodies, can verify an individual from a single blockchain-based identity. Therefore, a comprehensive background check is no more required.

Find more blockchain use cases in the legal industry.

E-commerce Checkout

Whenever individuals place an order online, they are asked to fill in specific information like name, email, phone number, address, etc. They have to repeat this process every time whenever they sign up at an e-commerce site, making the whole process time-consuming and cumbersome. Hence, signing up at multiple e-commerce sites with a unique identification number can save users time and effort.

Previous Employment verification
Presently, there is no fixed standardization to do a background check of the employees. It is essential to check employees’ information written in resumes, previous letters, or reference letters in the global employment sector. Validation of the information written in employees’ resumes can be requested directly through the blockchain ecosystem with a user’s permission.


Successful implementation of Blockchain identity management can enhance the level of security and privacy. The immutable and decentralized ledger allows third parties to validate the user’s data without wasting time and money.

The team of Blockchain Experts at LeewayHertz can provide you with extensive knowledge of how the attributes of the blockchain will bring transformation in the identity management industry. 

Author’s Bio


Akash Takyar

Akash Takyar LinkedIn
CEO LeewayHertz
Akash Takyar is the founder and CEO at LeewayHertz. The experience of building over 100+ platforms for startups and enterprises allows Akash to rapidly architect and design solutions that are scalable and beautiful.
Akash's ability to build enterprise-grade technology solutions has attracted over 30 Fortune 500 companies, including Siemens, 3M, P&G and Hershey’s.
Akash is an early adopter of new technology, a passionate technology enthusiast, and an investor in AI and IoT startups.

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