Almost every area of your life nowadays is supported by your identity. All of these tasks need you to prove your identification, including using online services, opening a bank account, casting a ballot in an election, purchasing property, and finding employment. 

Growing regulations regarding the collection, storage, use, and sharing of personal data have been implemented as a result of the numerous issues that older, less secure identity management systems have caused, such as data breaches, widespread hacks, and the sharing of people’s sensitive information without their knowledge. 

Fortunately, the development of blockchain identity management technology has made it possible to address these issues in a cost-effective manner while improving security, efficiency, data correctness, and accessibility.



Identity management is the framework of processes, policies, and technologies to ensure that only authorised people can access technology resources, information, or services. Identity and access management systems continuously evolve to improve security and the user experience. 

However, there are so many limitations to the traditional identity management system, hence the need for blockchain-enabled identity management systems.

  1. Lack of control

Users cannot presently restrict how personally identifiable information is used (PII). People don’t know how often their personal information has been retained or disseminated without permission. 

As a result, the current identity management procedure needs an inventive modification. By generating a universal ID that can be used for various purposes, blockchain identity management can give people sovereignty over their identities.

The ability for users to feel secure that no third party can share their PII without their agreement, thanks to blockchain, presents a potential solution to the aforementioned problems. 

A platform that safeguards people’s identities from breaches and thefts can be created using blockchain technology. 

Several usernames and passwords don’t need to be created because users can freely build self-sovereign and encrypted digital identities.

  1. Combination of usernames and passwords

Users must create a different username and password each time they register for a new online service. 

A person finds it challenging to remember a mixture of usernames and passwords for logging into several services. It can be difficult to maintain various authentication profiles.

  1. Identity theft

Individuals exchange their personal information online with various unauthorised sites or services, which increases the risk of identity theft. 

Additionally, since internet applications use centralised servers to store their data, it is simpler for hackers to break into those systems and steal private data. 

The Breach Level Index estimates that 4,861,553 records are stolen each day, which account for: 

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

The statistics on data breaches show how rapidly a hacker may take sensitive information like personal or financial data.

  1. Know Your Customer (KYC) onboarding

The present authentication procedure involves users, third parties who must verify the user’s identity, and verification firms/KYC companies. 

For all of these stakeholders, the system is expensive overall. 

As KYC companies must respond to requests from numerous organisations, including banks, healthcare providers, immigration officials, and others, they need greater resources to handle these requests swiftly.

As a result, KYC businesses must charge more for verification, which is then passed on to customers as additional processing costs. 

Also, it takes a while for third-party businesses to add clients. According to a global survey on “Know Your Customer” issues, US $48 million is the projected yearly global KYC spending.


We need to know the technical elements of the procedure to comprehend how a blockchain identity management system operates. 

The Blockchain-based Identity Management Process may involve the following five technical elements and interfaces:

  • Native Android/iOS App for individuals
  • Native Android/iOS App for third-party companies/verification companies
  • Inter-Planetary File System to store the user’s PII
  • Microservices programmed using Node.js
  • Permissioned Blockchain Component

People today require more effective identity management methods than paper-based documentation. 

The Blockchain Identity management tool will assist users in instantly authenticating and verifying their identities.

Step 1: Install the Mobile App

  • For the purpose of establishing his/her identification, a person must first download the mobile application from the Play Store or App Store
  • After installing it on their smartphone, an app user will set up a profile
  • Upon creating the profile, the user will receive a unique ID number enabling organisations to access their identification papers

Step 2: Upload the documents

  • The user must upload their government-issued IDs to the app after receiving their ID number to save them in IPFS and have their hashed addresses recorded on the blockchain
  • The application will collect personal data from these IDs so the user can self-verify their information
  • Data will be the user’s to keep. Users can choose what data to share with organisations using this tool. Any data sharing with identity thieves requires the user’s permission

Step 3: Generation of the person’s trust score by Smart contracts 

Consider a system where a person’s level of trustworthiness is measured. 

A user’s trust score can be generated for them based on the information they offer, while smart contracts with business logic also provide a self-sovereign identity.

Step 4: Request for access by Third-party companies

The people who hold the identity will always be notified whenever any organisation needs to access specific information about a person for authentication. 

A person’s identifying information may be used by third parties for person authentication once the user grants the company access to their details. 

People will also be able to find out why their personally identifiable information was utilised.

The user’s data and information are not kept on a blockchain. The blockchain will be the only place where the transactions between identity holders and businesses are tracked. 

A blockchain transaction will be added and made available to all connected nodes, for instance, if an immigration authority uses an app to confirm a person’s identity.

Let’s go through the illustration in greater detail. 

Consider Sarah, who must verify her identity before applying to study abroad programs. Due to the blockchain-enabled identity management tool, the educational institution can immediately verify her identification. 

For the centre to submit the request for information access, Sarah will give them the special ID number. 

Upon her request validation, the education hub can review her supporting documentation, and the transaction will be added to the blockchain.

Note: All of this PII (personally identifiable information) will be kept in encrypted form on the phone that IPFS supports.


As we indicated before, smart contracts may start the business rules and establish a trust score for each person using blockchain identity management. 

What does it actually mean, though? 

How does the trust score operate?

Smart Contracts’ trust scores can be used by businesses to verify users’ identities instantly by including more papers in their app upload, a user can raise their trust score. 

A user’s account can be checked to see if it’s legitimate or suspicious based on their trust score. To maintain or improve the trust score, identity should be utilised frequently.

A user’s status as a beginner might last for the first six months after they sign up, giving them the opportunity to build their trust score. They must upload the necessary data throughout that time frame. 

For instance, the user’s trust score can be checked if Bank of America needs to verify the applicant’s legitimacy before approving a loan. 

Giving the bank information about a person’s reliability can save time and resources.

Three factors that can help in building a trust score include:

  1. Uploading documents

The trust score will increase as a user uploads additional proof of identity. That is the main factor for beginners to start producing their scores.

  1. Regular use

Users might need to use the system frequently to maintain and raise the trust score.

  1. Matching information 

The system checks to see if fields like name, birthdate are consistent across submitted documents or not. The trust score will rise as more successful pairings are made.

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

  1. Lack of upload 

The trust score will decrease if pertinent papers are not submitted into the system.

  1. No third-party access 

The trust score will decrease if a person refuses to let particular organisations access to confirm their identity.

  1. Frequent information update 

The trust score may be reduced if a person’s personal information is changed frequently, which may make them appear to be a suspicious user.



Decentralisation allows for the spread of data across all network nodes, eliminating the possibility of a single point of failure instead of storing it all on a single central server.


The blockchain-based transactions are transparent to everyone on the network. Every made transaction has a verifiable legitimacy.


The blockchain ecosystem offers prime time and cost savings. Additionally, both individuals and businesses experience a decrease in the cost associated with identity verification.

Universal Identity

Consumers might also request that the organisation cross-border confirm their identification.


For the parties linked to the blockchain, it guarantees the confidentiality of the transactions.



There won’t be any user personal identification information saved on a centralised server. Users’ IPFS-backed devices are protected from widespread data breaches by IPFS storage of all the documents that allow for user identification. 

Any hacker unable to steal identifiable information cannot use the Blockchain identity management supported by IPFS. 

No single point of failure will exist in the system because it will be decentralised (SPOF). The system will fail to function without that component of the system, which is represented as a single point of failure. 

As a result, the system is guaranteed to never compromise due to the lack of SPOF.

Unique ID

Each user will receive a unique identification number after registering on the blockchain identity management system. 

All personally identifiable information about the user is stored on their device with IPFS support and combined into a single, unique ID number. 

Blockchain identity management enables users to directly authenticate themselves by sharing distinct IDs with any third party.

Universal ecosystem

Blockchain identity management has no regard for boundaries of any kind. Users can therefore utilise the platform outside their country to confirm their identification.

A blockchain-based identity management system won’t keep any user data on file. The technology also uses smart contracts to allow for regulated data dissemination. 

Hence, on the blockchain, data modification is not feasible. For identity holders as well, a blockchain-connected identity management system is extremely secure. 

No transaction involving the user’s information is permitted without the user’s express permission. The user is forced to manage their personally identifiable data.

Read more about the benefits of blockchain in identity management system 


A user may be required to provide several identity documents, such as evidence of age, proof of employment, and proof of address while going through any legal process. 

Thanks to blockchain identity management, people may no longer need to carry numerous documents with them while they are out and about. 

A single blockchain-based identification can be used to validate a person by both legal entities and governmental organisations. 

Thus, a thorough background check is no longer required.


A passenger must have a particular set of documents with them for clearance and security checks at the airport and their passport. 

A person can use a single, blockchain-based identity to complete every transaction, from purchasing a ticket to clearing security checks, boarding an aircraft, and relocating to a new nation. 

Decentralized identities eliminate the need for laborious security checks and other processes for individuals. Thus, blockchain identity management can streamline the procedure for travellers and authorities.

Application for loan

Assume you must submit a loan application or open a new bank account. Usually, the loan or credit application process takes weeks because you need to provide numerous identity documents to finish the human verification process. 

But, by swiftly disseminating important information, a blockchain-based identification might speed up the procedure. 

The cost and effort may be decreased because a user may not need to keep track of multiple IDs.

Previous Employment verification

There is currently no set standard for conducting an employee background check. In the worldwide job market, verifying the accuracy of information provided by candidates in resumes, prior correspondence, or reference letters is crucial. 

With a user’s authorisation, it is possible to directly request validation of the data contained in a resume for an employee.

E-commerce Checkout

People are prompted to enter details like their name, email address, phone number, and shipping address whenever they place an item online. 

Every time users sign up at an e-commerce site, they must repeat this procedure, which makes the process time-consuming and difficult. 

Users can therefore save time and effort by registering with a single identification number at many e-commerce websites.

Read more on real-life use cases of blockchain identity management systems


Undoubtedly, one of the most significant applications of blockchain technology is for KYC and identity management. 

But it’s still extremely early in this process. This does not imply that it is useless or that it will never be beneficial. 

The global multi-billion dollar digital identity problem still needs to be solved, and more work must be done before it becomes commonplace.

Leave a Reply

Your email address will not be published. Required fields are marked *