If you are like most people, you are signing up and doing a number of transactions online using social accounts and payment services, like PayPal, Apple Pay, or Amazon Pay for example. When you do this, you are sharing data and personal information that makes up your digital identity.

This is the norm, but becoming riskier due to an increase in cyber attacks on the platforms we all use online. For example, the Equifax hack that has put the tax IDs, driver license details, and other sensitive data of over 145 million people into the hands of hackers. How can this happen?

The Current Digital Identity System Is Risky

When you share your digital identity online it is stored across multiple databases. This is because data in your digital identity changes over time, such as address and phone number for instance, leaving little digital footprints all over the internet.

All of this causes a bottleneck in the current identity management model. Since you have a wide variety of online accounts, keeping track of passwords, usernames, and ID codes can be challenging for users. This in essence undermines the convenience and security the internet was supposed to support.

Our society will continue to become more digital, leaving many digital identities at risk. This makes implementing blockchain technology important in order to enhance security, as well as confidence to continue using online services.

Let’s take a deeper look at how tethering blockchain and digital identity will redefine online security for both users and organizations collecting user data.

Blockchain Protects Against Digital Identity Theft

Allowing online users to control of their digital identity is not just a good idea — it is a necessity. Last year more than 16.5 million people fell victim to identity theft. That is over one million more people than in 2016. This alone is frightening, but the bigger issue is that many of those who have had their digital identity stolen have no idea until they attempt to use their credit to purchase a home or car.

Integrating a blockchain and digital identity model can minimize these issues, and in many ways stop it completely. This is due to blockchain protocols that avoid data duplication and the use of personal information without consent from users.

These protocols are already being piloted. The state of Illinois developed the Illinois Blockchain Initiative, a program that aims to place all Illinois birth certificates on the blockchain.

The state of Illinois stated, “Blockchain and distributed ledger technology has the potential to transform the delivery of public and private services, redefine the relationship between government and the citizen in terms of data sharing, transparency and trust, and make a leading contribution to the State’s digital transformation”

This is one example of how a system like this can return control of personal information to users.

Transforming Single Points of Failure for Government IDs

There are a lot of problems associated with the current way personal information is stored by governments. For instance, many governments have switched to a single centralized identification system that requires citizens to use one ID to make bank transactions, file taxes, get medical service, and vote.

This sounds pretty efficient right? In a perfect world yes, but in a digital era full of hackers and cyber attacks, like the Equifax hack outlined above, a centralized ID system puts all users at risk.

The risk is due to the single point of failure governments have in place in a centralized system. For instance, a government that requires all citizens to use one ID for multiple services stores all that information on a sole database. A physical database at that.

Having a system that combines blockchain and digital identity can significantly mitigate this risk. Instead of a centralized system, the decentralized nature of blockchain security stores data across multiple points, as well as implementing multiple encryptions.

Blockchain Technology Can Eliminate Consumer Fraud

Consumer fraud is a big problem. In fact, consumer fraud caused over $16.5 billion in losses last year alone. This is not only an issue for consumers, but also for businesses. Since consumer financial information is online, hackers can steal the information and make fraudulent transactions online with almost zero risk.

Blockchain technology can put a stop to this. The encryption of personal information on the blockchain lets consumers decide who can access their information. Without a very secure encryption key, that needs to be verified by multiple miners, it is almost impossible to make a fraudulent transaction using blockchain.

This also protects businesses, since identity and funds are verified prior to the completion of any blockchain transaction. Some say that moving all transactions to the blockchain can make it too big, but there are plenty of ways to keep it efficient.

Wrapping Up . . .

There are a lot of use cases for blockchain technology, but improving the security of digital identity is one of the most important. The perpetual news of hacks on financial institutions and governments is a clear call to action for a better, more secure system to protect personal data. It has definitely become a must in the current digital climate.