How Blockchain Can Prevent Identity Theft

06 Apr 2021

Decentralized identity is a commonly discussed trope in the blockchain space that hasn’t had much to show. However, its potential is one worth paying attention to.

In a world full of identity theft, of which 14.4 million people fell victim in 2018, threats continually persist. However, blockchain technology’s decentralization provides a fighting chance, especially in a world where personal information is a currency.

The point of decentralized identity is to put personal data back in control of the people. It eliminates the process of companies taking and selling information, profiting at the expense of the user. This is done via tokenization. From the username to an email, each part of an online identity is represented via a token.

That token provides a user the power to control who and what can see such information. For example, someone going to the doctor could choose how much information is passed over, such as their medical history, name, and address. The user can then ensure permission is only granted to that doctor. The group can’t sell that information to another company.

Not only this, but it remains impossible for a bad actor to pose as that user. This is thanks to public and private keys, an idea carried over from traditional cryptocurrency wallets. Basically, a user creates corresponding public and private keys that represent their identity on a blockchain. The public key is then stored in something called a Decentralized Identifier (DID) - accessible via a decentralized network.

When signing up for a service, the provider would find the user’s public key on the network. From there, the user would verify ownership with their private key’s signature - a credential nobody else would have. Anyone can create multiple identifiers as well. They could have one for a social media platform, another for a game, and more.

The process is similar to how anyone can log-in to multiple services with their Google or Facebook account. What’s different is the user stores their various log-ins rather than a third-party platform. A person can also withdraw access to credentials as they see fit and profit from personal information they choose to give out.

Of course, considering private keys are stored on a decentralized blockchain network, it’s impossible for a bad actor or hacker to gain access. These networks are tamper-proof, with no central point of access to attack. This security, paired with the user’s control of their identity, prevents any and all personal information misuse.

What’s great is platforms like this already exist. PhoenixDAO is one great example. The network will support dApps of various kinds, from staking to event planning and more. Users will be able to create an identity on PhoenixDAO, utilizing it for simple access to the different dApps. There’s no threat of a data leak or a compromised third-party, either. All personal data is safe in the hands of its owner, who chooses which dApps have access and limits their access to irrelevant info.

As networks like this grow and become more common, identity theft will soon be a thing of the past. Irresponsible third-parties will no longer have control of personal information, and as a result, bad actors will have no way to get their hands on it, encouraging a bright future.


Important information

This website is only provided for your general information and is not intended to be relied upon by you in making any investment decisions. You should always combine multiple sources of information and analysis before making an investment and seek independent expert financial advice.

Where we list or describe different products and services, we try to give you the information you need to help you compare them and choose the right product or service for you. We may also have tips and more information to help you compare providers.

Some providers pay us for advertisements or promotions on our website or in emails we may send you. Any commercial agreement we have in place with a provider does not affect how we describe them or their products and services. Sponsored companies are clearly labelled.

CryptoCompare needs a newer browser in order to work.
Please use one of the browsers below: