Redefining Identity Management Systems with Blockchain Technology

Data breaches, identity theft, unauthorized access, and many other cyber threats are common issues in traditional identity management systems. One major cause of this challenge is the centralized repository used for storing, managing, and controlling digital identities. This centralized repository may suffer downtime due to technical issues or attacks from malicious actors, which can lead to data loss or performance bottlenecks.

There is an urgent need to explore technologies like blockchain to redefine the operations of traditional identity management systems. Blockchain, with its inherent strengths like decentralization, immutability, and security techniques, can be leveraged in identity management systems to secure user identities and data.

The advent of blockchain-based identity management, such as Self-Sovereign Identity (SSI) and Decentralized Trust Identity (DTI), also provides a user-controlled way of managing digital identities rather than storing and managing them in a centralized repository.

How do these technologies work? How does blockchain redefine the operations of identity management systems? All of this will be answered in this article. Read on to learn more.

Challenges of Traditional Identity Management Systems

Traditional identity management systems face several challenges, such as single points of failure, lack of user control over data, Compliance and regulatory challenges, and weak authentication processes.

1. Single Point of Failure: Traditional identity management systems manage and store digital identities in a centralized repository. This approach creates a single point of entry to access data, which often attracts malicious actors to target this point. A successful attack on the system gives them unauthorized access to sensitive data, which can lead to data breaches, financial loss, and reputational damage.

OKTA, a leading identity management system that provides authentication and authorization services to thousands of organizations, faced a shocking data breach in 2023. The impact of this breach was severe, as malicious actors gained unauthorized access to customer support system information that contains sensitive data such as session tokens, which could be exploited to impersonate users. This breach did not just affect OKTA but extends to thousands of organizations that rely on it for access control.

2. Lack of User Control Over Data: In traditional identity management systems, user identities and data are managed and controlled by a single entity, such as a corporation or government agency. This approach deprives users of the right to know how their data is stored, shared, and used. It also restricts them from having control over who can access and use their information.

3. Compliance and Regulatory Challenge: Traditional identity management systems may struggle to comply with industry standards or regulations due to the complex and time-consuming process of auditing trails and reporting. The dependence on third-party vendors for authentication also increases compliance risks, which can lead to legal penalties, operational disruption, and reputational damage.

4. Weak Authentication Process: Traditional identity management has a weak authentication process due to the reliance on passwords, which are susceptible to guessing or phishing. It also supports password reuse across multiple accounts, which can lead to data breaches across all the accounts associated with the password if it gets compromised.

How Blockchain Tackles the Challenges in Traditional Identity Management Systems

The blockchain is a distributed digital ledger that stores transactions and data across thousands of nodes that are geographically distributed. It addresses the challenges of traditional identity management in the following ways:

1. Decentralization: The decentralized approach of storing data across thousands of nodes offers a direct solution to the single point of failure challenge in traditional identity management. This removes the need for a central entity to control how digital identities and data are managed, and there is no central point for bad actors to attack and gain entry.

2. Transparency: Data stored on the blockchain are transparent and visible to all participants in the network, which can be used to verify the authenticity of data and identities without relying on any central entity. It also enables users to see how their data is stored and managed.

3. Immutability: Data stored on the blockchain is immutable, which means that once data is stored, it cannot be manipulated or altered. This provides solutions to cases like unauthorized manipulations by malicious actors and also makes it easier to verify the authenticity of data at any point in its history.

4. Security: Blockchain employs several security techniques, such as cryptography, which uses the asymmetric key to secure data. This involves using a private key to encrypt data and a public key to decrypt data to ensure that only authorized users can access the data. This approach ensures maximum security and minimizes cases like unauthorized access, which can help organizations comply with data protection like the General Data Protection Regulation (GDPR).

The Shift to Blockchain-based Identity Management

Identifying the potential solutions that blockchain technology offers to the challenges of traditional identity management systems, there's a need to embrace a technological shift to blockchain-based identity management systems.

What is a Blockchain-based Identity System?

A Blockchain-based identity management system uses blockchain technology to create, manage, and store digital identities. This involves storing digital identities across a network of nodes that are geographically distributed; i.e., each node holds a copy of the stored data without relying on any central entity to control its operation. Instead, it uses a consensus mechanism whereby nodes decide the validity of data by checking cryptographic signatures and ensuring all conditions are met to reach an agreement.

It also leverages several blockchain strengths, such as decentralization, immutability, and cryptography, to tighten the system's security.

Blockchain-based identity management can be categorized into two.

1. Self-Sovereign Identity (SSI)

2. Decentralized Trusted Identity (DTI)

1. Self-sovereign Identity: This is a decentralized approach that gives both individuals and organizations maximum control over their digital identities and data. It allows users to store their credentials, such as national ID or passport, as verifiable credentials in a digital wallet app on their device.

Then users can use their verifiable credentials to verify their identities when accessing several services, such as online banking, without losing control over their data or giving out all their personal information details.

The core components of Self-Sovereign Identity are:

i. Verifiable Credentials (VC): These are digital formats of credentials such as a national ID or driver's license issued by trusted entities like the government.

These credentials are cryptographically secure, tamper-resistant, and follow the standards of the world wide web consortium (W3C).

With this approach, users can securely share and verify their verifiable credentials with any organization or party without disclosing more information than they need to perform certain actions or access certain services.

This process typically involves three parties:

• Identity provider: These are trusted entities such as government agencies or universities that issue a VC to an individual or organization. This VC contains proof or a claim about the individual.

• Identity holder: This refers to the entity that owns the VC. They manage and store it in a digital wallet.

• Identity verifier: This is an entity that verifies the authenticity of the submitted VC by reading the records from a Verifiable Data Registry (VDR), i.e., a digital ledger such as a blockchain that securely stores and manages information about VCs. It enables verifiers to validate the authenticity without contacting the issuer.

ii. Decentralized Identifiers (DIDS): These are unique and cryptographically verifiable identifiers that identify a user or organization. They're used in the verifiable credentials process.

Once an issuer issues a VC, they include their public DID, which is stored on a Verifiable Data Registry (VDR), e.g., blockchain. When a verifier wants to verify the authenticity of the VC, they check the DID on the blockchain to check who issued the credentials.

The ultimate goal of the SSI is to ensure that users have maximum control over their data and digital identities, which aligns with data protection laws and regulations like GDPR.

2. Decentralized Trusted Identity (DTI): This is also based on the core principle of user-centric data and digital identity management. Its operations are similar to traditional digital identity management due to the involvement of trusted third parties.

The process typically involves an identity holder registering with a Trusted Third Party(TTP). Then the third-party system verifies the authenticity of the holder's credentials, such as passports or national ID, using an identity proofing system. Upon successful verification, the TTP issues a VC to the holder and records the cryptographic proof of the VC on the blockchain.

The holder then generates a VC presentation from the VC i.e., claims extracted from the VC and presents it to a service provider to access its services. The service provider verifies the authenticity of the VC presentation by comparing it to the cryptographic proof stored on the blockchain.

Upon successful verification, the service provider grants the holder access to its service.

Issue Process

Verification Process

Real-life Application of Blockchain-based Identity Management Across Several Sectors

Blockchain-based identity management systems are widely used across several industries to facilitate the management and security of digital identities and data.

1. Healthcare sector: Blockchain-based identity management systems are used in the healthcare sector for user authentication and verification before accessing healthcare records. This ensures that only authorized individuals can access health records and prevents cases like data breaches and unauthorized access.

A notable example of a blockchain-based identity management system is MedRec, a decentralized record management system. It handles the management of electronic health records (EHRS) by providing a secure and verifiable approach to authenticate users and manage their health records. This system uses decentralized identifiers to give users maximum control over their health records and securely share their healthcare status or medical history with authorized authorities. Smart contracts are also used to define access permission and data management rules to ensure maximum security of health records.

2. Finance sector: The financial sector leverages blockchain-based identity management to enhance the security and privacy of customer identities and data. Cryptographic techniques such as digital signatures and hashing are used to verify the authenticity of identities, which reduces cases like unauthorized access and identity theft. The blockchain's immutable nature also ensures that once identity data is recorded, it cannot be altered or deleted

One of the largest banks in Poland, PKO Bank Polski uses blockchain technology like the document authentication approach to authenticate and store bank documents to enhance security and ensure compliance with regulatory laws.

3. Supply chain management: Blockchain-based identity management systems are used in supply chain management to enhance the security of users’ data and the authenticity of products. This involves using decentralized identifiers to enable users to control and manage their digital identities, allowing them to easily verify their identities and minimize risks such as data breaches or identity theft.

Product authenticity can also be easily verified by assigning a digital identity to each product to ensure transparency and traceability. An example is Ever Ledger, a company that uses blockchain technology to create unique digital identities for luxury assets such as diamonds, which helps ensure that they can only be accessed by authorized stakeholders. It also uses blockchain immutability and transparency to ensure asset records can be tracked and verified in real-time.

Advantages of Blockchain-based Identity Management Systems

The blockchain-based identity management system offers several advantages, such as enhanced security, transparency, user control, minimizing cyber threats, and compliance regulations.

1. Enhanced security: Several blockchain security techniques, such as the public-private key pair, enhance security by enabling users to use their private key to encrypt data and its corresponding public key to verify its authenticity rather than relying on weak authentication processes like passwords. Blockchain immutability also ensures that once identity data is stored on the blockchain, it cannot be manipulated or altered, which reduces threats like unauthorized manipulations.

2. Transparency: Data stored on the blockchain are publicly visible to the network participants, which enables users to see how their digital identities and data are stored, managed, and used. This also fosters integrity and trust because changes made are visible to all participants, giving no room for shady manipulation.

3. User control: Self-sovereign identities give users maximum control over their data, allowing them to selectively disclose their information to necessary parties. Users can also verify their identity by providing only the relevant information to access some services rather than sharing all their sensitive data.

4. Minimizes cyber threats: The decentralized approach of managing and storing users' identities across nodes minimizes cyber threats like data breaches and prevents unauthorized access.

5. Enhance compliance regulations: Blockchain-based identity management uses smart contracts to automate compliance and predefined rules rather than the time-consuming manual verification process.

Challenges of Blockchain-based Identity Management System

Blockchain-based identity management systems offer several techniques to secure digital identities and data. However, it's not without its trade-offs. Challenges such as scalability, interoperability, and user adoption are problems associated with these systems.

1. Scalability: Scalability issues are inherent problems on blockchain platforms due to their low transaction processing speed, which often leads to delays in identity verification, especially when the system has a large user base. The use of computationally expensive consensus mechanisms such as Proof of Work (POW) to validate transactions on some blockchains like Bitcoin also makes the system less scalable.

2. Interoperability: Different blockchain-based identity management systems use different protocols, consensus mechanisms, and regulatory frameworks, which hinder the transfer and exchange of digital identities and data across blockchain platforms.

3. User Adoption and Experience: Managing cryptographic keys, interacting with smart contracts, and understanding blockchain concepts can be complex for non-technical users, which can limit its adoption.

Conclusion

Addressing the challenges that face traditional identity management is crucial, as they pose serious cyber threats to digital identities. In this article, we have explored the various ways in which blockchain features such as decentralization, immutability, and transparency can reduce these risks.

Embracing a technological shift towards blockchain-based identity management systems like SSI and DTI also provides a user-controlled way to manage data, enabling users to have maximum control over their digital identities, which can minimize risks associated with unauthorized access, identity theft and enhance compliance with data protection laws and regulations.

References

Introduction to Digital Identity Blockchain

A First Look at Identity Management Schemes on the Blockchain

Navigating Compliance Headaches: Overcoming the Identity Management Challenge

Blockchain-Based Self-Sovereign Identity: Survey, Requirements, Use-Cases, and Comparative Study