Demystifying Decentralized Identity and Verifiable Credentials: A Beginner’s Guide

In today’s digital world, proving one's identity has become both more convenient and more vulnerable. Traditional identity management methods, such as passwords and scanned documents, expose individuals to privacy risks, data breaches, and unnecessary complications.

This is where Decentralized Identity (DID) and Verifiable Credentials (VCs) introduce a transformative model: one that empowers individuals to control their identity, minimises the over-sharing of personal data, and enhances digital experiences.

Whether you’re a tech professional, policymaker, or simply curious about the future of digital identity, this article will guide you through the fundamentals of DID and VCs with a straightforward, real-world example.

What is Decentralized Identity?

At its core, Decentralized Identity is about returning control of personal data to individuals through a secure, digital identity framework.

In traditional systems, personal data (such as your name, date of birth, or other identifying attributes) is typically stored in centralised databases managed by companies or service providers. For instance, when you create an account on a website, that company holds your personal information, leaving you with limited control over how your data is stored and shared.

Decentralized Identity changes this model by enabling individuals to store and manage their own digital identities securely. Using cryptographic methods and distributed technologies, your identity data becomes tamper-resistant and under your direct control. This approach allows you to selectively share only the necessary information with third parties, for example, providing age confirmation without disclosing your full birthdate when renting a car online.

Core Components of Decentralized Identity:

• Credentials: Verified information that uniquely identifies and describes an individual or entity.

• Digital Wallets: Secure applications where users store and manage their credentials and identifiers.

• Issuers: Trusted organisations (such as governments or businesses) that create and issue Verifiable Credentials to users.

• Verifiers: Entities that check the authenticity and validity of credentials presented by users.

• Decentralized Identifiers (DIDs): Unique, user-controlled identifiers designed for decentralized identity management.

• Verifiable Credentials (VCs): Digitally signed and cryptographically secure credentials that prove specific identity attributes.

• Blockchain or Distributed Ledger Technology: The decentralized infrastructure that ensures tamper-resistance and transparency for credential management.

Similar to traditional Identity and Access Management (IAM) systems, these components collaborate to ensure secure access and verify user identities. However, the key distinction lies in the fact that users retain full control over their personal information at every stage of the process.

Decentralized Identity shifts control of your digital identity from centralised systems (like a government database or a single company) to you. Instead of creating multiple accounts across services, you manage your identity directly using cryptographic technologies like Decentralized Identifiers (DIDs).

This approach:

• Puts you in control of your identity and personal information.

• Allows your identity to work across borders and services.

• Reduces risks of identity theft and centralised data breaches.

In short, you become the owner of your digital identity.

What Are Verifiable Credentials?

In our everyday lives, we rely on physical IDs—like driver’s licenses to prove we can legally drive, diplomas to demonstrate educational qualifications, and passports to confirm our identity when travelling internationally. Verifiable Credentials (VCs) are designed to bring these kinds of real-world identity proofs into the digital realm, providing secure and privacy-respecting ways to share verified information online.

Verifiable Credentials are essentially digital statements issued by a trusted entity that verify specific information about an individual or organisation. These digital credentials include claims (such as name, date of birth, or license status) that are tied to both the issuer and the holder through Decentralized Identifiers (DIDs). The issuer signs the credential with its private key, creating cryptographic proof that the claims are authentic and unaltered.

For example, a government agency can issue a digital driver’s license as a Verifiable Credential. This credential can then be stored in a digital wallet and presented securely to any verifier who can instantly confirm its legitimacy without needing to contact the issuing agency directly.

The W3C’s Verifiable Credentials Data Model 1.0 provides the detailed technical specifications for these credentials, outlining how they can be issued, stored, presented, and verified. You can explore the full standard here.

How Does Decentralized Identity Work?

To support a new generation of digital identity that offers self-ownership and privacy protection, Decentralized Identity systems integrate a set of foundational technologies. These systems use unique, user-owned identifiers, digital wallets to manage associated cryptographic keys, and encrypted datastores that remain under the user’s control.

This architecture shifts identity management from centralised authorities to individuals, making censorship and unauthorised control over identity data nearly impossible. Together, these innovations enable a secure, scalable, and privacy-centric model for managing identities in the digital world.

How Decentralized Identity and Verifiable Credentials Work Together

• Decentralized Identity gives you a secure identifier that belongs to you.

• Verifiable Credentials are trusted digital documents issued to your identifier.

• You store these credentials in a digital wallet and present them wherever required.

Together, these form a secure, privacy-respecting framework for digital interactions across industries.

Leading Solutions in the Market

Several platforms offer Verifiable Credential solutions today. Some of them are:

• Microsoft Entra Verified ID

• MATTR (New Zealand-based VC and DID platform)

• Dock Labs (Blockchain-based VC infrastructure)

• walt.id (Consumer-focused identity verification and VC issuance)

All of these solutions follow open standards such as W3C Verifiable Credentials and Decentralized Identifiers (DIDs), and each can be used to build Verifiable Credentials-based ecosystems depending on organisational needs and existing technology environments.

The example scenario presented in this blog uses Microsoft Entra Verified ID as an illustration of how Verifiable Credentials can be practically implemented, though similar architectures can be realised using any compliant solution.

Example Solution: Microsoft Entra Verified ID

In Alex’s international travel scenario, Microsoft Entra Verified ID has been used as the example solution to demonstrate how Verifiable Credentials can be implemented in practice. Entra Verified ID, part of Microsoft’s Entra Identity suite, enables organisations to issue, manage, and verify Verifiable Credentials following open standards.

Key capabilities of Microsoft Entra Verified ID include:

• Credential Issuance: Creating digitally signed, tamper-proof credentials.

• Digital Wallet Integration: Storing credentials within the Microsoft Authenticator app.

• Verification Processes: Allowing organisations to cryptographically verify credentials without contacting the issuer.

• Enterprise Integration: Leveraging existing Microsoft Entra ID environments.

While Microsoft Entra Verified ID has been used to illustrate Alex’s journey, it’s important to note that similar solutions from other providers can also be used to implement Verifiable Credentials-based scenarios. Any platform adhering to open standards, such as W3C Verifiable Credentials, can support issuing and verifying digital credentials in the same way.

Organisations are encouraged to evaluate various solutions and select the one that best fits their operational environment and strategic goals.

Alex’s User Journey: International Travel Using Verifiable Credentials

📱 Step 1: Alex Receives his Digital Passport

Alex is preparing for his upcoming trip to Singapore. To simplify the travel process, he decides to obtain New Zealand’s new Digital Passport, a Verifiable Credential securely stored in his smartphone.

He starts by registering with the Department of Internal Affairs (DIA NZ) through their Verifiable Credential issuance platform. This platform first leverages RealMe, New Zealand’s trusted identity provider, to verify Alex’s identity. Once RealMe confirms his identity, the DIA issuance platform strengthens the verification with an additional face recognition check using Alex’s smartphone camera. The system securely captures Alex’s live image and matches it against his official photograph stored in DIA NZ’s Passport system.

After completing these robust checks—RealMe verification, facial recognition, and passport document matching—DIA NZ issues Alex’s Digital Passport as a Verifiable Credential using Microsoft Entra Verified ID. Alex securely receives and stores this credential in the Microsoft Authenticator app on his smartphone.

Outcome: Credential successfully issued and securely stored in Alex’s digital wallet.

✈️ Step 2: Alex Checks In with Air New Zealand

On travel day, Alex arrives at Auckland Airport. At the Air New Zealand check-in counter, the airline requests Alex’s passport details.

Instead of providing a physical passport, Alex opens his Microsoft Authenticator app, selects his Digital Passport, and taps “Share Credential.” Before the credential is shared, the app initiates a Face Check using real-time facial matching to confirm that Alex is indeed the person sharing the credential. Upon successful verification, the credential sharing proceeds automatically. Air New Zealand’s check-in system securely receives the credential and instantly verifies it cryptographically to confirm:

• It was genuinely issued by DIA NZ.

• It is authentic, valid, and unaltered.

This verification is completed within moments, allowing Alex to quickly receive his boarding pass digitally and proceed smoothly to the boarding gate.

This process ensures that Alex’s identity is confirmed biometrically in real-time before his credential is shared, enhancing security and confidence in the verification process.

Outcome: Alex enjoys a rapid and secure airline check-in experience.

🌏 Step 3: Alex Clears Immigration at Auckland International Airport

Before boarding his flight, Alex must clear immigration at Auckland International Airport, where new automated verification kiosks have been introduced to streamline passport control.

Alex approaches a kiosk, which prompts him to present his Digital Passport. He opens the Microsoft Authenticator app, selects the credential issued by DIA NZ, and taps “Share Credential.” Once the credential is shared, Alex is prompted to complete a Face Check using real-time facial matching to confirm that he is the rightful holder. After successful biometric verification, the credential is processed and shared securely with the kiosk.

The kiosk then cryptographically verifies the credential and confirms Alex’s identity, displaying a confirmation message that allows him to proceed directly to the departure gate.

This process ensures that Alex’s identity is confirmed biometrically in real-time before his credential is shared, enhancing security and confidence in the verification process.

Outcome: Alex experiences smooth, efficient, and fully automated immigration verification.

Final Thoughts: Benefits for Everyone

Verifiable Credentials powered by Decentralized Identity bring benefits not just for individuals like Alex, but also for organisations across the travel ecosystem:

For Travellers (Users): -

• Complete control over their identity.

• Faster, hassle-free processes at check-in and immigration.

• Enhanced privacy and data security.

• No need to carry physical documents.

• Increased trust and security through biometric verification using Face Check, ensuring credentials are only shared by the rightful owner.

For Department of Internal Affairs (Issuer): -

• Trusted issuance of fraud-resistant credentials.

• Reduced reliance on manual document verification.

• Strong assurance through RealMe, biometric checks, and document matching.

**
For Air New Zealand (Verifier):** -

• Instant, automated verification of passenger credentials.

• Streamlined check-in process.

• Reduced overhead in manual document handling.

• High-assurance verification using Face Check, ensuring the credential is presented by its rightful holder.

For Immigration and Border Authorities (Verifier):

• Automated, tamper-proof verification of identity.

• Faster clearance of passengers.

• Enhanced border security with less operational strain.

• An additional layer of assurance via biometric verification with Face Check.

For Airport Authorities: -

• Improved passenger flow and reduced bottlenecks.

• Enhanced digital infrastructure supporting modern travel.Summary

Sumary

In today's digital landscape, Decentralized Identity and Verifiable Credentials are reshaping how personal information is managed and shared. By giving individuals control over their digital identities, these technologies help reduce privacy risks, improve user convenience, and enable secure, seamless interactions across industries.

This blog used an international travel example to demonstrate how Verifiable Credentials can streamline real-world processes, benefiting users, issuers, and verifiers alike. Solutions built on open standards, such as W3C Verifiable Credentials, make such scenarios achievable using various technology platforms. Microsoft Entra Verified ID was featured here as one example of how these concepts can be implemented practically using enterprise-grade tools.

Decentralized Identity and Verifiable Credentials represent a future where privacy, security, and user control intersect. Governments, airlines, and border control authorities globally can benefit from adopting such trusted identity frameworks.

In future posts, I’ll explore implementation architectures, adoption challenges, and real-world strategies for scaling Verifiable Credentials in production environments.

Stay connected to learn more about the evolving future of digital identity.

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Disclaimer: All logos and brand names used in any associated diagrams or images belong to their respective organisations. They are used here purely for illustrative purposes without any intention of infringement or endorsement.