Decentralized Digital Identities

In the financial sector, regulatory requirements impose stringent rules related to the identification of customers and the management of their identity data. Financial institutions not only need to comply with strict requirements with regard to know-your-customer (KYC) processes and customer authentication but also with legislation pertaining to the management of personal data, e.g., related to data protection and minimization. Decentralized digital identities in the form of digital identity wallets represent an alternative to the traditional identity management model, in which organizations often collect more data than necessary for the provisioning of services and struggle to verify it efficiently and effectively. Digital identity wallets enable systemic trust and give control of identity data back to the data subject. In this chapter, we outline the technical means through which such decentralized digital identities can enable high degrees of user control, identity assurance, and privacy. We cover the governance and technical aspects of digital wallet-based decentralized digital identity management and outline the challenges ahead to realize their full potential.