How Blockchain is Disrupting the Digital Identity Verification: A Comprehensive Guide


Digital identity is the unique identity of a particular person on the internet. It is usually in the form of a username and password you enter to sign into various accounts, ranging from social media accounts to online shopping sites.

Protecting digital identity from cyber-attacks and data breaches is of utmost importance. Digital identity theft can cause phishing or unauthorized transactions, resulting in financial loss and misuse of personal information.

As per The Identity Theft Research Center (ITRC) Annual Data Breach Report, 2023 had a record-high number of data compromises in the U.S. in a single year.

Considering the rising cases of digital identity theft, businesses choose blockchain technology to streamline digital identity verification processes. But why blockchain? Read the blog till the end to know more.

In this blog, we have explained how blockchain is disrupting digital identity verifications. So, let’s get started! 

Blockchain-Powered Digital Identity Verification: Market Statistics 

The following are some of the latest statistics depicting the blockchain digital identity verification market. 

Digital Identity Verification: Market Statistics 

Source: Markets and Markets

  1. The global blockchain identity management market is estimated to increase from $1.3 billion in 2023 to $35.1 billion by 2028, with a CAGR of 92.7% during the forecast period. 
  1. As per recent reports, digital identity verification research forecasts that the number of digital identity verification checks will surpass 70 billion by 2024. 
  1. According to reports, North America dominated the digital identification industry in 2023. Asia-Pacific was the fastest-growing region over the projection period.

The above-mentioned statistics show the growth of blockchain-based digital identity verification in the coming years. 

What is Digital Identity?

Digital Identity, or digital ID, refers to the details and data of an individual, organization, or entity, that uniquely identifies them in the digital realm. 

It could be personal information, such as name, date of birth, address, username, and login credentials, such as passwords and biometric data.

Now, let’s understand where it is used online. Remember when you create your Facebook or LinkedIn account, you get the credentials to log in to your account. Your credentials are your digital identity. 

Similarly, there are various contexts on the internet and digital systems, where digital identity is used, such as e-commerce and online transactions, government services, online financial services, and more. 

Likewise, digital identity is used in various ways in different industry verticals. Now, let’s learn how Blockchain can improve digital identity verification processes. 

Role of Blockchain in Disrupting Digital Identity Verification 

Blockchain technology is known for decentralization, security, and transparency. By integrating blockchain for digital identity verification purposes, it offers the following: 

  1. Decentralized Identity (Complete Ownership of Data) 

In traditional digital identity verification systems, the user’s digital ID is stored at the centralized server. The user has no control over its data. 

By implementing blockchain, users get complete ownership of their digital identity. They can choose with whom and for how long they want to share their digital ID. 

  1. Self-Sovereign Identity (Full Authority over Data)

Implementing blockchain in digital identity verification gives users full authority over their data. They can verify, modify, and manage, without depending on the third party or a centralized institution. 

In traditional digital identity verification, one has to request the centralized authorities to verify or modify the digital identities. But now, blockchain has eliminated the dependency on centralized authorities. 

  1. Digital ID Verification

Earlier, the digital identity is verified by the centralized authorities. For instance, if you are logging in to your Bank of America account, your identity is verified by the BOA’s authorities. 

However, in blockchain-powered digital identity verification, the digital identity is verified through consensus mechanisms, such as proof of work or proof of stake, to ensure the authenticity of the transactions. 

Smart contracts, containing the terms and conditions of the verification, automate the verification process and verify the digital identity when these pre-defined terms are met. 

Blockchain technology eliminates the dependency on centralized authorities to verify digital identities, and conduct transactions. Owners have full control over their digital identity information and can change or share it with whomever they want. No third party can access the information without permission. 

How Blockchain Digital Identity Verification Works? 

Blockchain offers security, transparency and eliminates dependence on centralized authorities for digital identity verification. In this section, we have explained how blockchain-based digital identity verification works. 

How Blockchain Digital Identity Verification Works
  1. User Registration 

The users enter their information, such as name, address, date of birth, and credentials like username and password in the system. This data is verified via the standard KYC( know your customer) process.  

  1. Data Encryption

The data gathered by the system is encrypted using secured cryptography techniques, such as 

  • Hash functions (cryptographic algorithms that create a fixed-size hash value from input data of arbitrary size)
  • Digital signatures (signatures that use asymmetric cryptography to provide authentication, integrity, and non-repudiation for digital messages or documents)
  1. Blockchain Registration 

The user’s digital identity information is recorded on the blockchain network. The data is stored on a block (or nodes) of the network. 

  1. Consensus Mechanism

The block containing the encrypted digital identity is validated through the consensus mechanism, such as Proof of Work or Proof of Stake. 

Proof of Work (PoW) is a consensus mechanism where a participant proves to others that a certain amount of specific computational effort has been put in, to validate transactions and create new blocks in the blockchain.

On the other hand, Proof of Stake (PoS) is a consensus mechanism where validators are selected to create new blocks, based on the amount of cryptocurrency they hold and are willing to “stake” as collateral.

  1. Block Confirmation

The block becomes the permanent part of the blockchain ledger once confirmed by the network. 

  1. Decentralized Storage

The copy of the blockchain is stored across multiple nodes in a decentralized manner. 

  1. Verification Request 

When the users request digital identity verification, the encrypted data is retrieved from the blockchain. 

  1. Data Decryption

The user’s data is decrypted using the right cryptographic keys (key to encrypt or decrypt the data). 

  1. Verification Process 

The decrypted data is verified for the requested criteria, such as name, address, password, etc. 

  1. Result Generation

The result of the verification process is generated based on the comparison. 

  1. Blockchain Update

The verification results are recorded on the blockchain as the new transaction. 

  1. Consensus Mechanism

The new transaction is validated through the consensus mechanism. 

  1. Block Confirmation

Once it is confirmed, the transaction is added to the blockchain.

Hence, this is the process of blockchain digital identity verification. It can provide numerous benefits to businesses and startups if implemented correctly. Let’s learn about the advantages it offers in the next section. 

Benefits of Blockchain Digital Identity Verification 

Blockchain digital identity verification offers the following benefits: 

  1. Security

In blockchain digital identity verification, the cryptographic techniques securely encrypt the digital identity information and store it on the network. 

Also, the blockchain’s decentralized nature minimizes the risk of single points of failure and restricts unauthorized access. 

Overall, blockchain offers high-level security to the digital identity verification process. 

  1. Transparency

Another benefit of blockchain digital ID verification is the transparency of the verification process. Users can keep note of the history of their digital ID transactions, thanks to blockchain technology

This way, users are well-informed when they make transactions or modifications to their digital identities. 

  1. Privacy 

When digital identities are shared with the centralized authorities, there is always a risk of privacy breaches, and information being compromised. 

However, in blockchain digital identity verification, the users have control and authority over their identities, and they can choose with whom they want to share. 

  1. Reduced Fraud 

The digital identity verification goes through multi-level authentication, such as consensus mechanisms, making it difficult for malicious users to alter or misuse the digital identity data. 

Thus, it is almost impossible to misuse a person’s digital identity for a transactional fraud, when it is powered by blockchain technology. 

  1. Increased Efficiency 

In traditional identity verification processes, the centralized authorities verify the digital identities of users. This resulted in delays and the chance of mistakes is higher. 

Whereas, in blockchain digital identity verification, the verification process is streamlined, thanks to smart contracts and consensus mechanisms. 

Blockchain technology eliminates the need for intermediaries, delivering faster and more efficient identity verification.

  1. Interoperability

Blockchain digital identity solutions are interoperable across different platforms and services. 

This means that users can use their verified digital identities effortlessly on various applications and systems, without needing to enter the credentials repeatedly. 

  1. Compliance

Blockchain digital identity verification allows organizations to comply with regulatory requirements, such as KYC (Know Your Customer) and AML (Anti-Money Laundering) regulations. 

The smart contracts conduct the transaction when pre-defined terms are met. Hence, it becomes easy to tackle unauthorized transactions and reduce risks, using blockchain digital identity verification. 

  1. Cost-Effective 

Last but not least, blockchain digital identity verification is a cost-effective solution for businesses and startups, compared to traditional identity verification processes. 

The blockchain eliminates the dependency on the intermediary. Also, it automates the verification process, eliminating the need for manual verification. 

This saves a considerable amount for businesses, thus making blockchain identity verification a cost-effective option. 

Therefore, these are the benefits of blockchain-based digital identity verification. Now, let’s explore its use cases in various industry verticals. 

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Use Cases of Blockchain Digital Identity Verification in Different Industries 

Blockchain digital identity verification is used in various industries in the following ways. 

  1. Finance 

In finance, blockchain digital ID verification is used to conduct secured and fast transactions, allotting loans (borrower’s identity verification), and regulatory requirements such as KYC and AML processes. 

  1. Healthcare 

Blockchain digital identity verification is used in the healthcare sector for managing and transferring patient records and information securely. 

Also, patients have control over their digital identity and they can choose with whom they want to share the same.   

  1. Government Services 

Blockchain digital identity verification helps the government to provide secure and efficient access to government services, such as voting, tax filing, and social welfare programs. 

Blockchain technology in identity verification prevents fraud, enhances government record’s accuracy, and builds the trust of citizens in government institutions. 

  1. Education 

In the education industry, blockchain-based identity verification is to authenticate the identities of students, teachers, and educational institutions. 

Moreover, blockchain is used to store and share academic credentials and certifications securely. 

  1. Human Resources 

Blockchain-enabled digital identity is used by the human resources department to verify an individual’s educational qualifications and skill sets during the hiring process.  

It streamlines the hiring process by saving time and cost and reducing the dependency on third parties for verification of an employee. 

  1. Supply Chain 

In the supply chain, blockchain digital identity verification is leveraged to track and verify the identities of various parties, such as suppliers, manufacturers, distributors, and retailers, in supply chains. 

Blockchain digital identity verification helps to prevent counterfeiting, fraud, and unauthorized access while ensuring transparency and integrity. 

  1. Real Estate

Blockchain digital identity verification is used by real-estate brokers and firms to verify the identity of buyers and sellers. 

This helps with minimizing the risk of fraud and facilitates the transfer of property ownership. 

  1. Travel and Hospitality

In the travel and hospitality industry, blockchain digital identity verification is used to simplify and secure the travel experience for passengers. 

Travelers leverage their digital identities to securely verify their identities at airports, hotels, and other travel-related services. 

This helps reduce the dependency on physical documents and minimizes the risk of identity theft and fraud. 

Thus, these are the top use cases of blockchain digital ID verification in various industries. 

Comparison Between Blockchain-Powered And Traditional Digital Identity Verification

Here is a brief comparison of Blockchain and traditional digital identity verification 

AspectBlockchain Digital ID VerificationTraditional Digital ID Verification 
SecurityUtilizes cryptographic techniques and decentralized storage to ensure secure and tamper-resistant identity data.Relies on centralized databases and systems, which are more vulnerable to hacking and data breaches.
PrivacyProvides users with greater control over their own identity data and allows for selective sharing of information.Often involves sharing sensitive personal data with third-party entities, raising privacy concerns.
TransparencyOffers transparent and auditable verification processes, as all transactions are recorded on the blockchain ledger.Verification processes may lack transparency, making it difficult to track the handling of identity data.
InteroperabilityOffers the potential for interoperability across different platforms and services, allowing users to use their verified digital identities across various applications.May lack interoperability between different systems and services, leading to fragmented identity verification processes.
Regulatory ComplianceFacilitates compliance with regulatory requirements such as KYC (Know Your Customer) and AML (Anti-Money Laundering) regulations through transparent and auditable processes.Compliance with regulatory requirements may require manual verification processes and extensive documentation, leading to higher costs and risks.
Resilience to FraudResistant to fraud and tampering due to the immutability and consensus mechanisms of blockchain technology.More susceptible to identity theft and fraud, as centralized databases can be targeted by malicious users.
AccessibilityCan provide identity verification services to individuals without access to traditional identity documents or financial services, promoting financial inclusion.Access to identity verification services may be limited to those with access to specific documents or systems, excluding marginalized populations.
TrustBuilds trust through the decentralized and transparent nature of blockchain technology, reducing the reliance on centralized authorities.Relies on trust in centralized entities, such as government agencies or corporations, to accurately verify and manage identity data.
EfficiencyStreamlines identity verification processes by automating verification and eliminating intermediaries, resulting in faster and more cost-effective processes.Often involves manual verification processes and multiple intermediaries, leading to delays and inefficiencies.

So, these are the differences between blockchain-powered digital identity verification and traditional digital ID verification. 

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Concluding Thoughts 

Blockchain digital identity verification is transforming the traditional ways used by businesses and startups to verify an individual’s identity. Integrating blockchain provides decentralized, secured, transparent, and tamper-proof storing and managing digital identities. 

This is the reason why different industries, ranging from healthcare to real estate are embracing the blockchain-based digital ID verification processes. 

As technology advances and innovations happen in blockchain technology, we will witness more advanced verification processes used by businesses and startups to authenticate digital identities. 

Choose Quytech to Develop a Blockchain Digital Identity Verification Solution  

If you also want to integrate blockchain to empower your identity verification processes or build a custom blockchain digital identity verification solution from the ground up, contact our team today. 

We are the top blockchain development company having years of experience in empowering businesses and startups with our custom blockchain development services. 

We build blockchain-powered apps and software tailored to your specific needs. Visit our website for more information.