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What is digital identity and why is it critical in 2025?
Digital identity is the unique digital representation of a person, organization or device, enabling secure authentication, authorization and online interaction. As digital services proliferate and security regulations tighten, managing digital identities is more important than ever. The global digital identity market is valued at approximately USD 47 billion in 2025 and is projected to quadruple by 2035, with North America and Asia-Pacific driving rapid adoption.
Centralized digital identity: Legacy and risks
Centralized digital identity systems have been the default approach for decades, where a single authority (like a government agency or tech company) manages user credentials and personal data. While this model is familiar, it brings significant drawbacks:
Single point of failure: Breaches of centralized databases, as seen in Equifax (2017) and Capital One (2019), can expose millions of identities.
Privacy risks: Storing sensitive data in one place increases the risk of leaks, misuse and non-compliance with privacy regulations.
User friction: Managing multiple accounts and passwords leads to password fatigue and weak security practices.
Fragmentation: Users juggle credentials across platforms, making identity management inefficient and error-prone.
Trusted digital identity: Verifiable and secure authentication
To address these weaknesses, trusted digital identity systems use cryptographic methods and strong governance frameworks. These systems offer:
Identity proofing: Verifying user identities through reliable checks, often leveraging multi-factor authentication.
Credential issuance: Providing users with cryptographically verifiable credentials.
Attribute release: Allowing users to share selected personal attributes securely with service providers.
Governance: Ensuring proper privacy, compliance and consent management.
Trusted digital identities are transforming sectors like banking (streamlined KYC and onboarding), healthcare (verifiable access for staff and patients), government services (secure portals) and travel (digital travel credentials). Real-world examples include Nordic BankID, Estonia’s e-Residency and ICAO’s Digital Travel Credential.
Self-sovereign identity (SSI): Decentralization and user control
SSI introduces a decentralized method for digital identity, giving individuals full ownership and control over their credentials. Key concepts include:
Decentralized identifiers (DIDs): Self-generated, unique identifiers that are not reliant on any central authority.
Verifiable credentials (VCs): Digitally signed attestations stored in secure digital wallets.
Selective disclosure: Users decide which data to share, minimizing unnecessary exposure.
SSI brings benefits such as privacy-by-design, interoperability, phishing resistance and data portability. It empowers users to manage their identities securely and flexibly across platforms.
Digital identity trends and the road ahead
With digital economies expanding, robust digital identity systems are foundational for trustworthy online interactions. The future lies in combining strong assurance with user-centric control - whether via centralized, trusted or SSI models. This shift will reduce reliance on vulnerable repositories, enhance privacy and offer greater choice for users and organizations alike.
For a deeper dive into implementation strategies, challenges and the latest trends in digital identity security - including practical guidance on verifiable credentials and decentralized identifiers.
Find out more on our full blog post here
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