Digital Asset Identity

What is considered a digital asset?

Since the start of the digital age, examples of digital assets included websites, videos, presentations and spreadsheets.

Recently, digital asset examples also refer to cryptocurrencies like Bitcoin (BTC), Ether (produced by blockchain platform Ethereum) and Dogecoin, asset-backed stablecoins like Tether (USDT) and Binance USD (BUSD) and non-fungible tokens (NFT’s). NFT’s use blockchain technology to validate the ownership and authenticity of an original digital object. 

Physical assets like commodities and real estate can also be tokenised to be traded in the same way as cryptocurrency.

To digitize or convert real estate into a token, you need to break down the real estate investment into smaller chunks.

Each chunk can then be turned into a token that can be owned in digital format.

What is blockchain?

Digital asset transactions are recorded on a decentralized database or electronic ledger as data blocks kept together in a particular order using computer ‘hash’ codes.

This type of structure is called a blockchain and means that digital assets can be transferred without a centralized entity like a broker, bank or intermediary.

As it does not use an intermediary, blockchain, a type of digital innovation initiative, uses a smart contract written in its code, which automates the execution of an agreement for a transaction.

Any new transaction would need to be verified by nodes or a network of computers before it is added to the ledger.

The majority of the nodes in this network would be required to conclude that a transaction is valid before being combined with the other existing blocks. This new block is then added to the blockchain to become a database of time-stamped transactions which cannot be altered as each new block contains a hash or a digital fingerprint. 

All of the hash codes on one block match the codes on the other blocks in a chain. Therefore, if this chain were tampered with, a hacker would need to recalculate the hash code in an existing block and then the new blocks following this, which would take up a lot of time and so tampering with a blockchain would be an arduous process. 

Is NFT the same as crypto?

Cryptocurrencies and physical money are considered ‘fungible’ as they can be exchanged or traded for one another.

Additionally, they are always equal in value, meaning that one bitcoin will generally be comparable to another bitcoin. On the other hand, NFT’s are not equal and cannot be exchanged for another as each has a unique digital signature. 

NFT’s represent digital collector’s items and can be created from intangible and tangible items. GIFs and virtual avatars have also included Twitter’s co-founder Jack Dorsey who sold his first tweet for more than $2 million.

One type of NFT can only have one owner at a time, unlike cryptocurrency, meaning that it is easier to verify ownership. Examples of marketplaces include Foundation, Rarible and OpenSea.io.

What is a digital token?

While cryptocurrencies are a native digital asset of a particular blockchain protocol, tokens are developed by platforms and are built on top of existing blockchains.

For instance, examples of crypto tokens built using the Ethereum platform include LINK, COMP and CryptoKitties.

In addition, Crypto tokens can serve a variety of functions, such as allowing participation in decentralized finance (DeFi) and providing the ability to play games. 

Even more, tokens can also be created to represent tangible assets like real estate and art and intangible assets like data storage space.

The most common token standards are ERC-20 which allows the development of tokens that can co-exist with Ethereum’s decentralized apps, and ERC-721, enabling NFT’s.

What is a digital asset management system?

A digital asset management (DAM) system uses technology to create a centralized system for organizations to store and access their digital assets. Blockchain can help DAM’s function more efficiently by guaranteeing the integrity of its data.

This is because each block of data contains a digital footprint of the history of previous transactions.

It also has the potential to stop distributed denial-of-service (DDoS) attacks as these types of disruptions are focused on a central server which has a single point of failure, unline a decentralized blockchain.

What is a distributed digital ledger?

A distributed digital ledger is a database that can be accessed by multiple individuals across sites, institutions or countries. Any changes or amendments made to a ledger are noted and then sent to all participants who own identical copies of its data.

In contrast to a centralized ledger, a distributed digital ledger is a decentralized database. As a result, it is less prone to fraud and cyber attacks as it does not have a single point of failure.

Blockchain is one type of distributed ledger.

Although blockchain is made up of an orderly sequence of blocks, not all distributed ledgers require a chain.

What is an identity and access management system?

Traditionally, an identity and access management (IAM) system was a structure of policies, technology and processes which managed digital or electronic identities.

Once this structure was in place, the IT department could control user access to critical information within an organization. In short, this helps to identify, authorise and authenticate an individual so that they can access systems or services.

When discussing an IAM in terms of blockchain, a distributed digital ledger allows all individuals in a particular network to possess the same accurate information about the validity of credentials and who confirmed the validity of the data within a credential without revealing the actual data.

It is projected that the global identity management sector will be worth $11.46 billion by 2026. 

This method of authentication is known as zero-knowledge proofs (ZKP’s), which is a mathematical way of verifying a truth without revealing the actual information.

In a real-world application, cryptographic algorithms are used to verify a statement by a computer.

For instance, ZKP’s can allow a payment receiver to know that the payer has sufficient funds without getting any other information about their balance. 

What is digital identity?

A digital identity arises from data created by an individual’s actions online and use of personal information.

Once an individual purchases digital assets, they will have proof of ownership of this asset. It will be registered in digital format and a user’s identity information.

Then, when an individual needs to verify ownership of a digital asset, they can use their digital identity credentials. 

At the moment, our important identification information is kept on a centralized government database that has a single point of failure.

So, if this type of directory gets compromised, every user has to go through a complicated recovery process. This is because ordinarily centralized databases are hosted on third-party servers.

So, this feature of a centralized database makes it more appealing to hackers. But, by using blockchain, you can create a decentralized identity for yourself.

Additionally, centralized databases will also lead to oversharing of identity information.

For example, if you use a utility bill to prove your address. In that case, a company will get access to other sensitive data on this document, even though it does not need it to verify your address.  

What is a self-sovereign identity (SSI)?

Self-sovereign identity is an identity model that puts the user in control of their personal information.

It protects an individual’s privacy by giving them control over what they share and prevents over-sharing or storage on a central database.

Under this type of identity model, individuals or companies (the holder) who possess one or more identifiers (an expression of digital identity which allows a subject to be discovered and identified) can present a claim (an assertion made about a subject) related to these identifiers without the need of an intermediary.

  This is why SSI would work well with blockchain technology.

What are decentralized identifiers (DIDs) in blockchain?

Decentralized Identifiers (DID) are one element of a self-sovereign identity and Distributed Ledger Technology such as blockchain and the Verifiable Credentials (VC) protocol.

This type of protocol allows physical credentials to be converted into a digital format.

Holders of these credentials can disclose relevant data from this credential to those who need it without displaying all of the actual data.

A VC is a digital credential whose authorship has been verified by the issuer using cryptography.

VC’s can also be used to create verifiable presentations which are encoded and verified in such a way to aid trust in the authorship of the data. The creation of a VC starts with the issuer generating a VC for identity documentation and holders building a verifiable presentation using these credentials that they can then send to a verifier.

A verifier can look at this presentation and verify whether an issuer has attested this credential by checking it against the digital signature in a verifiable data registry (blockchain).  

When an issuer provides you with a verifiable credential, they attach a DID to that credential.

This DID is a code-based identifier associated with the VC that allows the verifier to check the authenticity/validity of the credential without contacting the issuer. DID’s can be stored on a verifiable data registry.

Each DID is secured with a private key, meaning that only the private key owner can own and control their identity.

An individual can have multiple DID’s for different needs, such as work or gaming. 

Why is a decentralized identity important?

A decentralized identity is important as it can get rid of passwords and multi-factor authentication protocols. Using blockchain, a verifiable data registry could also allow companies to verify individual identities without going through KYC processes.

A decentralized identity framework also allows you to store sensitive ID information in your digital wallet, which is only accessible by you, reducing identity theft.

This type of identity also means lower data management costs for organizations as they do not have to pay for several databases to store user information.

What is a decentralized autonomous organization (DAO), and how does it work?

A decentralized autonomous organization (DAO) functions on smart contracts that can dictate how this type of entity is managed and makes decisions.

It is essentially run by code on blockchain technology rather than a traditional leadership hierarchy.

In this way, the members of a DAO can act as managers and owners without the need for bureaucracy.

For instance, Friends With Benefits (FWB) is a creative DAO community where members can vote on group decisions and oversee membership applications after purchasing FWB cryptocurrency tokens.

Examples of self-sovereign identity use cases

SSI can be applied in real life in a variety of ways.

For example, the International Air Transport Association (IATA) travel pass allows airlines to verify health passports.

These passports can store verifiable credentials such as test and/or vaccination results on an individual’s mobile device, meaning that there is no need for a centralized system to store personal information.

SSI can also make KYC information ‘recyclable’ as businesses can use verified credentials with a DID to speed up the onboarding process for customers and remove the need for a paper trail.

What is the future of digital identity?

There are a variety of efforts to build DID infrastructures to continue building a more widespread digital identity.

For example, the Pan-Canadian Trust Framework aims to create a Canadian digital identity ecosystem that intends to secure the inoperability of private and public sector capabilities while still putting the user’s needs first.

However, at the moment, the world is not in the same place in terms of privacy regulations, trust frameworks or identity definitions, making the adoption of a universal approach to digital identity difficult. 

Findings from Accenture demonstrate that you can overcome these failings by adopting a combined approach where an IAM model is combined with a decentralized identity model.

While a decentralized identity can create a user-controlled digital identity which can be easily shared and verified, IAM can help an organization meet its specific identity and access needs.

In this way, organizations can benefit from operational efficiency and a broader range of trusted data to offer more personalized services to users while still respecting their privacy.