Digital Identity 101: A Beginner’s Guide for 2025

The digital identity market is undergoing rapid transformation, driven by technological innovation, rising cybersecurity demands, and evolving regulatory frameworks. Valued at roughly USD 47 billion in 2025, the global market is projected to more than quadruple by the mid-2030s, with North America leading adoption and Asia-Pacific seeing the fastest growth. Organizations worldwide are embracing digital identity to enhance security, streamline user experiences, and meet compliance requirements, as consumers increasingly expect privacy-preserving, convenient, and trusted online interactions.

In the following blog we will answer the most important questions associated with the digital identity space:

• What are the main models of digital identity (Centralized Digital Identity, Trusted Digital Identity, and Self-Sovereign Identity) and how do they differ?

• What challenges do traditional centralized identity systems face?

• How do emerging models like trusted digital identity and SSI address these challenges?

A digital identity is the collection of information and attributes that uniquely describe a person, organization, or device in the online world. It serves as the online “representation” of a real-world entity and is used to authenticate, authorize, and interact in digital environments, similar to how an ID card or business registration works in the physical world.

Digital identity is typically built from data points provided directly by the individual or organization (self-asserted) and from verified sources (trusted third parties, government agencies, service providers).

• For individuals: A digital identity enables you to log into accounts, prove who you are, and access personalized services.

• For organizations: It allows companies to interact in digital ecosystems—such as signing contracts electronically, operating secure portals, and managing brand presence.

The dominant model for managing digital identities has historically been centralized identity management, in which a single authority creates, stores, and governs credentials. This structure delivered efficiency and control in earlier computing environments, but its design assumptions are increasingly challenged by modern security, privacy, and interoperability requirements.

Centralized identity management has long been the default way organizations and governments control digital identities and access. Originating in the 1960s with simple password files, it matured into directory-based platforms where a single authority (typically IT or an identity provider) manages identities, credentials, roles, and permissions in one place.

As networked computing grew, these centralized systems became the practical way to govern who could access which systems and data. Their history, function, and emerging limits will help explain why the identity landscape is shifting toward new models.

While the approach of a centralized digital identity system can simplify setup and administration, it also creates structural weaknesses that impact security, privacy, compliance, user autonomy, and accessibility. The following are key challenges and risks associated with centralized identity management.

Centralizing user credentials and personal data in one repository concentrates risk. If that central database is breached, millions of identities can be compromised in a single incident. High-profile cases like the Equifax (2017) and Capital One (2019) breaches demonstrate how attackers can exploit such a setup to access sensitive information like names, Social Security numbers, addresses etc. on a massive scale. Also even without a breach, outages at the identity provider can instantly cut off access to all connected services.

Centralized identity models typically give the operator full control over how personal data is stored, processed, and shared. Users have limited visibility into where their data goes, who accesses it, and for what purpose leading to:

• Overcollection of data far beyond what’s needed for a specific transaction.

• Data misuse or unauthorized sharing with advertisers, partners, or government agencies.

• Increased exposure to surveillance or profiling.

While each organization keeps its own user directory, individuals don’t actually “own” their identifiers (e.g., email address, username, account number). These can be revoked, changed, or suspended at the provider’s discretion. Users also often need to create separate accounts for each service, leading to fragmented profiles that are hard to manage. Worse, to access even basic services, people may be forced to overshare personal details, such as providing a full date of birth for a simple subscription.

With privacy regulations (like for example GDPR in the EU), organizations must manage consent, data minimization, and right-to-erasure requests. Centralized identity systems often lack fine-grained access controls or automated data lifecycle management, making it difficult to comply. The centralization of data also creates bottlenecks for fulfilling Data Subject Access Requests (DSARs), as every request may require manual review of all stored records.

Traditional centralized identity almost always relies on usernames and passwords. Across dozens of accounts, users tend to:

• Reuse passwords

• Choose weak, easy-to-remember credentials

• Fall victim to phishing and credential stuffing attacks

This not only undermines security but also increases the operational cost of resetting and recovering accounts.

As digital transactions have become more critical and high-risk, organizations increasingly require identity systems that go beyond simple account management. This need has led to the concept of trusted digital identity, a framework that provides verifiable, standards-based assurance about who or what is on the other end of a transaction.

Trusted digital identity is a verifiable link between a real person (or org/device) and digital credentials that other parties can rely on with a known level of assurance. “Trusted” means the identity was proven, is bound to strong cryptography, and is governed by rules (policies, audits, certification) so relying parties know how much to trust it.

How it works:

1. Collect minimum, strong evidence (e.g., passport/ID images or chip data).

2. Verify documents and MRZ/chip where available (ICAO 9303).

3. Cross-check with authoritative sources (bank/KYC, government registries).

4. Perform remote or in-person verification (video/live agent) with liveness checks.

5. Apply risk-based additional checks for higher-assurance or high-risk cases.

Standards & assurance: NIST IAL 1–3; eIDAS assurance levels (Low / Substantial / High); applicable national eID/AML requirements.

Lifecycle: Create a versioned proofing record at onboarding. Record when, how and with what evidence proofing occurred; trigger re-proofing when identity attributes materially change or after defined expiry.

Security & privacy: Collect only required evidence, encrypt stored proofing records, use access controls and tamper-evident audit logs. Prefer pairwise/pseudonymous identifiers to avoid cross-service correlation and apply retention policies to delete unnecessary artefacts.

Outputs: Durable proofing record, unique (pseudonymous) subject identifier, assigned IAL/LoA, and audit trail of proofing events.

How it works:

1. Generate a key pair in a secure enclave or TPM for passkeys (FIDO/WebAuthn); register the public key with an relying party.

2. Issue verifiable credentials (W3C VC / ISO mDoc) signed by an issuer and stored in a user wallet for selective disclosure.

3. Provision enterprise credentials or PKI certificates to smartcards/TPMs with PIN or biometric binding; support multi-device enrollment and recovery where required.

Standards & assurance: FIDO2 / WebAuthn, W3C Verifiable Credentials, ISO 18013-5 (mDL), PKI best practices and attestation profiles.

Lifecycle: Support enrollment, backup/recovery, key rotation/renewal and revocation. Track credential provenance and versioning; schedule expiry and refresh per policy.

Security & privacy: Keep private keys confined to secure hardware/OS keystores; require local unlock controls (PIN/biometric). Minimize attributes in credentials, protect attestation metadata that can fingerprint users, and implement revocation without unnecessary data exposure.

Outputs: Issued, cryptographically bound credential(s) (passkey, VC, certificate) ready for authentication and selective disclosure.

How it works:

1. Verify possession/control via challenge–response (passkeys/WebAuthn) or signed wallet assertions.

2. Apply step-up authentication (additional factors) for elevated-risk operations.

3. Bind the authentication to session context (origin, device) and produce an assertion for the relying party.

Standards & assurance: Map authentication methods to AAL levels (e.g., AAL2/AAL3); follow WebAuthn and token best practices for session binding and replay protection.

Lifecycle: Treat authentication as a session lifecycle: initial assertion, session binding and refresh, step-up when needed, and defined termination/renewal. Log assurance changes (e.g., step-up events) for audit and risk scoring.

Security & privacy: Use origin binding, anti-replay measures, short-lived tokens and risk signals. Limit authentication telemetry to minimal, pseudonymised metadata and apply throttling/abuse detection.

Outputs: Authenticated session assertion tied to user/device, recorded assurance level, and audit/log entries for the authentication event.

How it works:

1. Release only the attributes required by the relying party (scopes → claims via OIDC/SAML).

2. Use selective disclosure techniques (SD-JWT, BBS+/AnonCreds, VC selective reveal) to prove facts without oversharing.

3. Enforce policy (ABAC/RBAC), record consent and support purpose limitation.

Standards & assurance: OIDC/SAML, W3C Verifiable Credentials proofs, relevant ISO mobile credential standards and data-minimisation guidance.

Lifecycle: Manage attribute issuance, expiry/refresh and revocation. Record and version consent; require re-assertion when source data changes or when regulatory/business needs demand current proofs.

Security & privacy: Require explicit, auditable consent per attribute release. Use pairwise or pseudonymous identifiers to avoid cross-site linking, and store only minimal audit metadata needed for compliance.

Outputs: Scoped attribute set released for the transaction, consent record, and release policy metadata (expiry, provenance, revocation status).

How it works:

1. Define and publish policies (proofing SOPs, credential lifecycle, recovery, crypto-agility, incident response).

2. Maintain compliance mappings, certification (where applicable), trust lists and third-party risk controls.

3. Monitor operations with fraud analytics, audits and continuous improvement; handle user lifecycle events (name change, lost device, re-proofing).

Standards & assurance: Align governance artifacts with applicable frameworks (e.g., eIDAS, NIST), certification schemes (FIDO, PKI profiles) and industry trust lists.

Lifecycle: Version governance documents and trust metadata; schedule audits, risk reviews and key/certificate renewals. Ensure rapid revocation and coordinated re-issuance after incidents.

Security & privacy: Embed privacy-by-design: DPIAs, least-privilege RBAC, protected telemetry and encrypted audit logs. Require security/privacy controls from vendors and maintain retention/deletion rules and breach notification procedures.

Outputs: Maintained trust posture: published policies and SOPs, operational audit logs, updated trust anchors/credentials, and evidence of compliance and incident handling.

The following are some of the most common drivers behind the emergence of trusted digital identity, spanning security, compliance, technology, and user experience.

• Password crisis: Breaches, phishing, and account recovery costs made passwords (and SMS OTPs) untenable at scale; we needed phishing-resistant, crypto-backed authentication.

• Remote onboarding & compliance: Banks, gov, and healthcare had to verify people remotely (KYC/AML, age/eligibility). That required auditable proofing levels, not just accounts.

• Digital transformation of high-stakes services: Payments, e-gov, and telehealth moved online and cross-border; relying parties needed confidence in who they were dealing with, not just a username.

• Federation limits: SSO (OIDC/SAML) solved convenience but not assurance, selective disclosure, or strong binding between a real person and credentials.

• Privacy & regulation: GDPR/eIDAS (and similar) pushed data minimization, consent, and revocation, driving models with pairwise IDs and attribute-level control.

• Zero-trust architectures: Modern security assumes every request must be re-verified; that needs strong identity signals (user, device, key, posture), not weak factors.

• Hardware & wallet readiness: Secure enclaves, platform biometrics, and smartphones made it practical to bind identities to strong keys (passkeys, smartcards, wallets).

• Interoperability standards: NIST IAL/AAL, eIDAS LoA, FIDO2/WebAuthn, W3C Verifiable Credentials, and ISO mdoc created shared assurance languages and portable credentials.

• Economics & UX: Lower fraud and support costs (bye, password resets/SMS) with better conversion and fewer MFA-fatigue failures.

• Ecosystem momentum: Governments (e.g., eIDAS2 wallets), platforms (Apple/Google/Microsoft passkeys), and industry alliances aligned, making “trusted” identity deployable at scale.

• Use case: Faster, more secure Know Your Customer (KYC) and onboarding. This streamlines account opening and high-value transactions by allowing banks to instantly confirm a customer’s identity without manual checks. It’s particularly valuable for remote banking and reducing drop-off rates during digital onboarding.

• How it works: Customers authenticate with a government-issued digital ID or bank-provided trusted identity to instantly verify their identity instead of submitting physical documents.

• Benefits:

  • Reduces onboarding from days to minutes

  • Minimizes fraud risk with strong cryptographic proof

  • Enables secure remote account opening, loan applications, and high-value transaction approvals

• Example: Nordic BankID, Singapore’s Singpass used for bank onboarding

• Use case: eID programs for accessing government portals and services. These allow citizens to authenticate once and gain secure, seamless access to a wide range of services, from filing taxes to updating personal records, without having to re-verify for each service. This increases efficiency for both citizens and government agencies.

• How it works: Citizens use a digital identity wallet or smart card to log in to tax portals, health services, and voting systems with strong authentication.

• Benefits:

  • Centralized yet secure access to multiple services

  • Reduces paperwork and in-person visits

  • Improves privacy by using selective disclosure (only the needed data is shared)

• Example: Estonia e-Residency, Germany’s Online-Ausweisfunktion, Australia’s myGovID

• Use case: Secure access to patient records and telemedicine platforms. Trusted digital identities ensure that only verified healthcare professionals and the correct patients can access sensitive records or participate in consultations. This improves trust in remote healthcare and reduces the risk of medical errors or data breaches.

• How it works: Patients and healthcare professionals authenticate with trusted IDs linked to verified licenses or health records.

• Benefits:

  • Confirms patient identity in remote consultations

  • Controls access to sensitive health data

  • Streamlines cross-institution data sharing while complying with HIPAA/GDPR

• Example: Estonia’s state e-ID for e-health records and e-prescriptions, the UK’s NHS Login / NHS App for records, repeat prescriptions and remote consultations

• Use case: Digital passports and boarding. Travelers can store their identity credentials on mobile devices for quick, secure verification at borders, security gates, and boarding points. This not only speeds up the process but also reduces the need for handling physical documents in high-traffic environments.

• How it works: Mobile IDs or digital travel credentials verify identity at border checkpoints and airline gates.

• Benefits:

  • Speeds up security checks

  • Supports touchless, paperless travel

  • Increases fraud detection accuracy

• Example: ICAO Digital Travel Credential (DTC), Apple Wallet mDL for TSA checkpoints

Among emerging identity models, Self-Sovereign Identity (SSI) represents the most decentralized approach, shifting ownership and control of credentials entirely to the individual. It builds on advances in cryptography, distributed systems, and open standards to eliminate reliance on a single authority.

Self-Sovereign Identity (SSI) is a digital identity model that places individuals at the center of their own identity management. Unlike traditional identity systems where credentials are stored and controlled by centralized authorities (e.g., government databases, corporate login systems, or social media platforms), SSI allows people to own, control, and manage their identity data directly.

With SSI, identity credentials,such as proof of age, education, professional qualifications, or licenses, are issued to an individual and stored in their secure digital wallet. The individual can then decide exactly what information to share with a service provider, employer, or government agency.

Key principles of SSI:

• Ownership: The user holds their credentials, not a third party.

• Control: The user chooses when, where, and how their identity information is shared.

• Consent: Sharing is always intentional and permission-based.

• Privacy: Only the necessary data is disclosed (selective disclosure), and credentials can be revoked at any time.

• Independence: No dependency on a single issuing entity or centralized database.

In essence: SSI is both a technological framework and a philosophy that identity should be portable, privacy-preserving, and entirely user-owned.

A Decentralized Identifier (DID) is the technical foundations underlaying SSI. It is a type of globally unique identifier designed for decentralized identity systems. It is part of the W3C DID standard and is the key mechanism that enables SSI to function without centralized registries.

DIDs have a few unique attributes that make them DIDs different from traditional identifiers (like email addresses or national ID numbers):

• No central authority: DIDs can be created and managed without registering with a government, company, or platform.

• Self-generated: Users create DIDs locally, on their own device, without requiring approval from an issuing body.

• Decentralized resolution: Each DID resolves to a DID Document, which contains:

  • Public keys (to prove ownership via cryptographic signatures)

  • Service endpoints (for secure communication)

  • Metadata about the DID

• Security and resilience: Since they can be anchored in blockchains or distributed ledgers, DIDs avoid single points of failure and provide a tamper-resistant verification method.

Role of DIDs in SSI:

• Issuer: Uses a DID to sign credentials.

• Holder: Uses one or more DIDs to represent themselves when receiving or presenting credentials.

• Verifier: Uses a DID to identify itself and verify presented credentials.

Compared to centralized identity systems (where credentials live in one company’s database) and federated identity systems (where you log in via a central provider like Google or Facebook), SSI offers:

1. User control & portability: Credentials are not tied to a single service; you can take them anywhere and use them across multiple platforms.

2. Privacy by design: Selective disclosure and unlinkable proofs allow you to reveal only what’s necessary (e.g., prove you’re over 18 without revealing your birth date).

3. Phishing resistance: Authentication uses cryptographic proofs instead of passwords or redirect-based logins, removing common phishing attack vectors.

4. Open, interoperable ecosystem: Built on open standards, meaning credentials from one issuer can be verified by any compliant verifier, creating a global trust network.

1. Decentralized Identifiers (DIDs): Unique, self-controlled identifiers like did:method:abc123. Each DID resolves to a DID Document containing the public keys and service endpoints necessary for secure, verifiable communication.

2. Verifiable Credentials (VCs): Cryptographically signed statements (e.g., “is over 18”, “has a driver’s license”, “holds an MBA”) issued by a trusted entity. These are tamper-evident and can be cryptographically verified without contacting the issuer.

3. Wallet: Secure software (mobile app, browser extension, or desktop app) that stores your DIDs and VCs, allows you to present credentials with selective disclosure, and helps manage keys, revocation, and consent.

1. Create an Identifier: The holder generates a DID locally; this process also generates a private/public key pair. The private key stays on the holder’s device.

2. Obtain Credentials: An issuer (bank, university, government, employer) issues a Verifiable Credential (VC) to the holder’s wallet. The credential is digitally signed by the issuer’s private key.

3. Present Proofs: When a verifier requests proof, the holder creates a Verifiable Presentation containing only the required data, often using zero-knowledge proofs to avoid revealing extra details.

4. Verification: The verifier:

   • Checks the issuer’s signature using the public key in the issuer’s DID Document.

   • Confirms the holder controls the DID (proof of possession).

   • Consults a revocation registry or status list to ensure the credential hasn’t been revoked.

5. Authorization: If the credential is valid and meets the verifier’s requirements, access is granted, a transaction is approved, or the service is provided, all without a central identity provider being involved.

How this relates to passkeys/WebAuthn?

Passkeys can secure the wallet itself or be used as the cryptographic keys behind a DID. In practice, you can authenticate the user with passkeys and use DIDs/VCs for portable, privacy-preserving attributes and claims.

As economies, and critical services continue to move online, the foundation of secure and trustworthy digital interactions will be strong, verifiable digital identities. Whether managed through centralized, trusted, or fully self-sovereign approaches, the key will be to combine high assurance with user empowerment. Decentralized and user-controlled models, enabled by technologies like passkeys, decentralized identifiers, and verifiable credentials, offer a path to reduce reliance on vulnerable central repositories while giving individuals greater privacy, portability, and choice. By investing in robust, interoperable, and user-centric identity systems today, we can build the trust and resilience that the digital future demands.

In this blog we answered the most important questions associated with the digital identity space:

• What are the main models of digital identity (Centralized Digital Identity, Trusted Digital Identity, and Self-Sovereign Identity) and how do they differ? Centralized Digital Identity, Trusted Digital Identity, and Self-Sovereign Identity differ in how credentials are issued, stored, and controlled, from a single authority in centralized systems, to standards-based, verifiable credentials in trusted identity, to fully user-owned and portable credentials in SSI.

• What challenges do traditional centralized identity systems face? Traditional centralized identity systems face risks such as single points of failure, privacy and compliance challenges, fragmented user control, and reliance on insecure password-based authentication.

• How do emerging models like trusted digital identity and SSI address these challenges? Trusted digital identity and SSI address these issues by using cryptographic credentials, privacy-preserving attribute sharing, and decentralized control to enhance security, interoperability, and user autonomy.