How blockchain technology is modifying what is possible in the market?

Continuation from post SSI: Digital Identity User Experience

Blockchain technology has introduced fundamental changes to how we think about digital identity. By removing the need for central authorities and enabling new forms of cryptographic proof, blockchain is opening up possibilities that were previously impossible or impractical.

When I first started working with blockchain identity systems, I was skeptical. I mean, how could this complex technology actually solve the identity problems we've been struggling with for decades? But the more I learned, the more I realized that blockchain isn't just another technology, it's a fundamental shift in how we think about trust and verification.

The Decentralization Revolution

Removing Central Authorities

Traditional digital identity systems rely on central authorities, governments, banks, tech companies, to issue and verify identity claims. Blockchain technology makes it possible to create identity systems that don't require these central authorities.

This is huge. For the first time in history, you can have an identity that isn't controlled by any single institution. You don't need a government to say you exist. You don't need a bank to verify who you are. You don't need a tech company to manage your data. The blockchain does it all through math.

What this enables:

• Global identity: Identity systems that work across borders without relying on specific governments
• Censorship resistance: Identity systems that can't be shut down by central authorities
• Reduced costs: No need to maintain expensive central infrastructure
• Increased security: No single point of failure that can be attacked

I remember when I first understood this. It was like a lightbulb moment. We've been so used to the idea that identity comes from institutions that we never questioned it. But what if you don't trust the institution? What if the institution doesn't exist? What if the institution is corrupt? Blockchain solves all of these problems.

Trust Through Cryptography

Instead of relying on institutional trust, blockchain-based identity systems use cryptographic proofs to establish trust. This creates new possibilities for verification and authentication.

This is where it gets really interesting. Instead of trusting a human or an institution, you're trusting math. And math doesn't lie, doesn't get corrupted, and doesn't change its mind. It's the most reliable form of trust we've ever had.

What this enables:

• Mathematical certainty: Proofs that are mathematically verifiable rather than dependent on human judgment
• Privacy-preserving verification: Proving claims without revealing unnecessary information
• Automated verification: Smart contracts that can automatically verify and process identity claims
• Interoperable trust: Trust that works across different systems and platforms

The privacy-preserving verification part is what really blew my mind. You can prove you're over 18 without revealing your age. You can prove you have a college degree without revealing your grades. You can prove you're a citizen without revealing your social security number. It's like magic, but it's actually just really good math.

New Possibilities in Identity

Self-Sovereign Identity

Blockchain technology makes it possible for users to have complete control over their identity data. This is a fundamental shift from traditional systems where institutions control user data.

This is the part that gets me most excited. For the first time, you actually own your identity. Not your government, not your bank, not Google or Facebook. You. And you get to decide what to share, with whom, and for how long.

What this enables:

• User control: Users decide what data to share, with whom, and for how long
• Data portability: Users can move their identity data between different systems
• Selective disclosure: Users can prove specific claims without revealing other information
• Revocation: Users can revoke access to their data at any time

The revocation part is huge. Right now, if you give a company access to your data, it's almost impossible to take it back. They might say they'll delete it, but how do you know? With blockchain, you can literally revoke access with a single transaction. It's like having a kill switch for your data.

Zero-Knowledge Proofs

One of the most powerful applications of blockchain technology to identity is zero-knowledge proofs. This technology aplicability applied allow users to prove that they know something without directly revealing what they know.

Applied to identity, generating a verifiable proof becomes something granular and way more interesting to use from a user and usability standpoint of view.

What this enables:

• Age verification: Proving you're over 18 without revealing your exact age
• Credential verification: Proving you have a degree without revealing your grades
• Membership verification: Proving you're a member of an organization without revealing your role
• Financial verification: Proving you have sufficient funds without revealing your balance
• And many more daily non trivial activities which you need to proof something you know, you are, etc.

Instead of showing your entire driver's license to prove you're over 18, you just prove that you're over 18. Instead of showing your bank statement to prove you can afford something, you just prove that you have enough money. It's like having a magic wand that can prove anything without revealing anything.

New Business Models

This new layered sytem permits as well new business models in the identity space:

Identity as a Service (IDaaS) 2.0: Instead of storing user data, companies provide tools for users to manage their own identity data.

Verification as a Service: Companies that specialize in verifying specific types of claims without storing the underlying data.

Privacy-Preserving Analytics: Companies that can analyze identity data without accessing the underlying information.

Granular monetisation: You can decide which of your personal exposed public data is up to be used by platforms, as the access to it is controlled by you.

Truly digital voting attached to identity, reducing voting costs and permitting a more active citizenship on decission making. ...

New Use Cases

Decentralized Finance (DeFi)

Blockchain-based identity is enabling new possibilities in decentralized finance:

DeFi is where I've seen the most exciting applications of blockchain identity. It's like watching the future of finance being built in real-time.

Credit scoring: Using on-chain data to assess creditworthiness without traditional credit bureaus.

Collateralized lending: Using digital assets as collateral for loans.

Insurance: Automated insurance products that use identity data for risk assessment.

Gaming: Identity systems that work across different games and platforms.

Open trusted, private credit scoring you can showcase without revealing your entire financial history.

Supply Chain

Blockchain identity is being used to track and verify products throughout supply chains:

Supply chain is another area where blockchain identity is making a huge difference. It's solving problems that have existed for centuries.

Product authenticity: Proving that products are genuine and not counterfeit.

Origin tracking: Tracking products from source to consumer.

Quality assurance: Verifying that products meet quality standards.

Sustainability: Tracking environmental impact and sustainability practices.

The authenticity part is huge. Counterfeit goods are a massive problem, especially for luxury brands and pharmaceuticals. With blockchain identity, you can prove that a product is genuine by tracking it from the factory to your hands. And the sustainability part is crucial, you can track the environmental impact of every product and make informed decisions about what you buy.

Healthcare

Blockchain identity is enabling new possibilities in healthcare:

Healthcare is one of the most exciting applications of blockchain identity. It's solving real problems that affect millions of people.

Medical records: Secure, portable medical records that patients control.

Prescription management: Secure systems for managing prescriptions and medications.

Clinical trials: Verifying participant identity and consent for clinical trials.

Telemedicine: Secure identity verification for remote healthcare services.

The medical records part is huge. Right now, your medical records are scattered across different hospitals and doctors' offices. With blockchain identity, you can have a single, secure record that you control and can share with any healthcare provider. And the prescription management part is crucial, it can prevent prescription fraud and ensure patients get the right medications.

Challenges and Limitations

Technical Complexity

Blockchain-based identity systems are more complex than traditional systems:

I have to be honest here. As much as I love blockchain identity, it's not perfect. There are real challenges that we need to address.

User experience: The technology is still too complex for average users.

Key management: Users need to securely manage their cryptographic keys. The average user does not understand, care about, or have the same level of concern for digital security as they do with traditional identity solutions. The perception of "the digital world" is still not as serious or as tangible for most people, though this is changing. The rise of cryptocurrency, among other factors, is making it clear that if you truly want to own something digitally, you need to take the same precautions as you would with your physical keys.

Recovery: What happens when users lose access to their keys? Social recovery methods are emerging, with third parties getting involved, which means you don't have to have complete sovereignty if you don't want it, or if it's not fully practical. This also allows traditional identity systems to use the technology for efficiency, transparency, and global permanence and traceability. For example, when you receive a diploma from a university or when you are born, you are born globally, not just in your country.

Scalability: Current blockchain systems have limitations on transaction throughput.

The key management part is the biggest challenge. If you lose your private key, you lose your identity. There's no "forgot password" button. And the user experience is still too complex. We need to make this technology so simple that your grandmother can use it.

Adoption Challenges

Getting users and institutions to adopt new identity systems is difficult:

This is the classic chicken-and-egg problem. Users won't adopt it until there are enough services that support it, but services won't support it until there are enough users.

Network effects: Identity systems become more valuable as more people use them.

Institutional resistance: Existing institutions may resist new systems that reduce their power.

Regulatory uncertainty: The regulatory environment for blockchain identity is still developing.

Interoperability: Different blockchain systems need to work together.

The institutional resistance part is real. Banks, governments, and tech companies have a lot to lose if users can control their own identity. They're not going to give up that power without a fight. And the regulatory uncertainty is frustrating, we're building the future while the rules are still being written.

The Future

Convergence with Traditional Systems

The future will likely see a convergence of blockchain-based and traditional identity systems:

I don't think blockchain identity will completely replace traditional systems overnight. It's more likely that we'll see a gradual transition.

Hybrid approaches: Systems that combine the best of both approaches.

Gradual migration: Existing systems gradually adopting blockchain technology.

Interoperability: Systems that can work with both blockchain and traditional identity.

User choice: Users able to choose between different identity systems.

The hybrid approach makes the most sense to me. We can use blockchain for the parts where it adds value, like privacy and user control, while keeping traditional systems for the parts where they work well, accesibility, etc. And user choice is crucial, people should be able to choose the identity system that works best for them.

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Next in the series: Which use cases and products are being built?