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What is Decentralized Identity and How Does it Work on Bitcoin?

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Bitcoin Decentralized Identity
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Having a digital identity and identity management are two concepts that have become more relevant and popular in the last few decades. But now, the idea of decentralized identities are becoming more critical.

In a world that is increasingly online, control of one's own personal data is more important than ever. Revelations about the lack of privacy internet users face have been jarring, but decentralized identity, and the decentralized digital identity systems that have changed how we think of identity and access, has been looking to introduce how we can protect our identity information on blockchains.

What is Decentralized Identity (DID)?

While DID more specifically refers to digital identifiers that are user-owned and cryptographically verifiable, it can also be used to refer to decentralized identity systems in general. 

With the advent of blockchain, decentralized databases, and pseudonymous, cryptographic identifiers are changing online data access. DID uses blockchain technology to disintermediate personal information. This means important data everyone needs for user accounts, banking, peer-to-peer transactions and more no longer need a central authority.

But how does that work? Users won’t have to give up their personal information to every app and website. When data breaches, hacks, and mishandling of private information is rampant, users want security.

When you sign up for a social media account, that platform has your traditional identity stored in a centralized identity database. So does the bank when you open an account, and so does the Department of Motor Vehicles when you renew a driver's license online. Each one of them are responsible for keeping your information protected, but they often fail. 

DID give users actual control over their private information. This means:

  • Ability to control who can access specific information
  • Universal logins across platforms
  • Fewer bots and spammers with unconfirmed identities

When did Web3 begin exploring decentralized identities?

You’re likely already familiar with digital identities. Your email address, for example, is a digital identity. The various accounts and logins you use everyday online are digital identities, but they’re fractured and disparate. 

Every platform has its own identification system. This means that every platform also has a certain amount of each user’s personally identifying information.

Decentralized identities emerged with the invention of blockchain. The earliest non-custodial crypto wallets were a form of decentralized identity. Every wallet has a unique, cryptographic key or crypto identity that can only be accessed by the key holder. 

How do DIDs work on the Bitcoin Blockchain?

Bitcoin Name System (BNS) is an example of a decentralized identity protocol. It's a protocol for creating DIDs on Bitcoin, where BNS creates Bitcoin usernames that give users complete control. Like ENS on Ethereum, or DNS on web 2.0, BNS creates unique identifiers for every user. It does this by binding Stacks usernames off-chain without relying on any central points of control. BNS names are:

  • Completely unique
  • Chosen by the user
  • Only the name's owner has control over the domain name

As the oldest and most secure blockchain, Bitcoin can easily become the standardized blockchain for DID around the world with things like BNS.

What is Self-Sovereign Identity? How does it work with Blockchain IDs?

Self-sovereign identity (SSI) is part of the decentralized identity ecosystem. It contributes to the idea of individuals wholly owning their identity through the use of distributed systems.

As such, there are three key attributes of SSI:

  • SSI data is stored on a blockchain
  • It uses verifiable credentials (VCs)
  • It utilizes decentralized identifiers (DIDs).

Even if a DID is stored on a blockchain, if a user doesn’t self-custody or the application has access to the data, it’s not self-sovereign. This is an important component to complete ownership of personal identity and user data.

How can Bitcoin help develop a better Decentralized Identity in Web3?

By using DID and BNS, Bitcoin can actually give users hope for self-sovereign identity. Personal information is not only vulnerable to hacking or leaking, it’s also often used legally for targeted advertising. But most users don’t realize they consent to this when they sign up for apps and online services.

Using blockchain and DIDs, users won’t have to worry as much about stolen information or floods of targeted ads, given that you're relying on the self-custodial, trustless nature of decentralized identity management networks. 

Decentralized IDs and Uses on the Bitcoin Blockchain

There are many ways users can use DIDs on Bitcoin. Firstly, if you own a crypto wallet, you have a type of blockchain identity. But beyond that, any application or platform could adopt DID credentials like BNS to allow user logins, without ever managing user information.

Today, there are already platforms that are making use of DID with token gating. One example is This is a Web3 chat app by Trust Machines that allows individuals to use NFTs and bitcoin. It’s also possible to grant access to certain features and communities based on whether a user holds specific tokens.

Platforms like Console are paving the way for more applications to utilize DID and truly give users self-sovereign identities.

Credentials and Methods for Bitcoin DID

Bitcoin's decentralized identity (DID) system gives users a secure way to control their personally identifiable information. Bitcoin’s DID framework provides a way to manage credentials on your own as a user, including the following:

  • Public and Private Key Pair 
  • Bitcoin Address
  • Wallets and Recovery Phrases 
  • Hierarchical Deterministic (HD) Wallets 
  • Multisignature Addresses 

Private keys allow users to keep their own data secure, themselves. HD wallets allow users to create new child keys and manage multiple identities easily. And multisig wallets increase security for data and transactions that require input from multiple people.

All of these features can create a new paradigm for how we think about personal data and how it’s managed online.

What is a Universally Unique Identifier (UUID), and how does it play into Decentralized IDs?

Universally Unique Identifiers (UUIDs) are a standardized identifier that is globally unique. This allows integration across decentralized entities. They require:

  • Uniqueness
  • Interoperability
  • Decentralized Identity Resolution
  • DID Method Specific Identifiers 

A UUID can be totally unique and standardized at the same time. For example, it can combine things like a timestamp, a unique ID created by the user, and cryptographic randomness. This standardization allows DIDs to be used across platforms.

DID's Importance for a Decentralized Future

Every day, more digital information is generated online and more people are relying on the digital world to manage their lives. This massive digital adoption makes it even more important for individuals to be in control of their own personal information.

In the last few years, public trust in much of the tech infrastructure, particularly when it comes to how it manages identity data, has plummeted — and for good reason. But there’s no going back on the internet. That’s why it’s more important than ever to develop solutions that give people self-sovereignty and control, and the decentralized identity space on blockchains like Bitcoin is providing frameworks for identity verification and authentication that could enable individuals to really own their identities without depending on centralized registries.