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Decentralization is the Future of Digitization

Use cases  •  
Mar 29, 2022
 • logged_by: Joachim

What we will explore?

To begin with, the article states that digitization has accelerated immensely due to Covid and predicts that this will stay beyond the pandemic. In the first part, a light is being shed on the challenges that this brings, stating that some breaking points can be eased with more digitization rather than less. This is further analysed in the second part, examining how effective digitization can be achieved. Decentralized technology is mentioned as one solution to trust challenges. Next, the article offers an outlook of a sustainable, future-proof solution. Digital identity data is introduced as having a positive impact on Germany’s future as well as Europe’s. Following, benefits of a decentralized identity based on a fully open infrastructure are given.  Lastly, the article closes off with naming ten potential use cases, such as digital money, eGovernment or HealthTech. 

Digitization is now more relevant than ever

‘The spread of COVID-19 and the government measures taken to respond to it have turned our previous lives upside down and revealed where the breaking points are.’

The COVID-19 pandemic has accelerated digitization. That is the consensus among many experts around the globe – including the OECD, “the world moved online,” McKinsey, “In just a few months’… the COVID-19 crisis has brought about years of change,” and Deutsche Telekom, “the pandemic has developed from an unwanted stress test to an accelerator of digitization in all areas of life.”

The spread of COVID-19 and the government measures taken to respond to it have turned our previous lives upside down and revealed where the breaking points are. Commerce, education, public administration, the health sector, as well as everyday office work – little of this was digitized as effectively as we’ve come to expect in other parts of our lives. This in turn exacerbated the severity of the COVID-19 pandemic to an unnecessary degree, as seen in the fact that sectors or organizations that were more thoroughly digitized were able to react to the pandemic more flexibly. These were the bodies that weathered the new constraints and dynamics more quickly and easily than those where digitization needed to be improved or was just beginning.  What’s more, it appears that things will stay this way beyond the pandemic.

Alongside the COVID-19 pandemic and its repercussions on our everyday life, we are starting to see and feel the economic effects and aftermath. If investments can be sourced, then they are most likely to flow into digitization, as noted by the likes of Forbes, Morgan Stanley and finance.swiss. Their number one purpose: profiting from the advancement of digitization projects, one of the few sectors of the economy actually thriving within the crisis. Digital identities will be the next linchpin of an inclusive economic growth around the world. “Extending full digital ID coverage could unlock economic value equivalent to 3 to 13 percent of GDP in 2030—in developed economies and will penetrate even faster in emergent nations, says McKinsey in their Digital Identification report. 

Why are there delays in digitization?

Digitization does not solve every problem. Indeed it will also create its own challenges to security and trust within society. However, some of the exposed breaking points can be eased, repaired or even prevented by more digitization rather than less. Digital representations like your driver’s license, passport or vaccination certificate will make everyone’s lives much easier.

Identifying the problem

Navigating the Internet requires an exchange of information. As such, various levels of trust and security are desirable and often mandatory. Currently, our online interactions happen through independent platforms that apply their own specific architectures to solve these prerequisites. However, as few people want to rely on a single platform, we end up sharing our data with countless online entities. Having done this, we have little control over our own data once uploaded. What’s more,  we now have so many online interactions that it can be impossible to keep track of all these interactions or with whom our data has been shared. 

Secondly, access and security are extremely poor. No platform can claim to be 100 percent secure against the leaking of users’ private data, be it by accident, security gaps or malicious attacks. The current username/password access to online services is not only a usability nightmare, but also an opportunity for impersonation and fraud. Recently added two factor authentication is a measure to improve the situation, but still far from the standard level of security that should be deemed acceptable.

The third factor is that we remain a mostly analogue world, especially when it comes to documents that earn their trustworthiness through the issuing authority. A passport issued by a country, an educational credential diploma issued by a school or university, a referral issued by a previous employer, and so on. Even payment is still mostly analogue, with online shops requiring you to manually add your credit card information or IBAN.

What might a sustainable, future-proof solution look like?

  • no single points of failure
  • individual, fine grain control of data and identity
  • infrastructure that can not be controlled or dominated by one or a few large players ( e.g. the way the Bitcoin system has evolved, Facebook for social networking, or Google for Ads and everything else)
  • systems that are trustworthy by virtue of their open, auditable and extensible nature
  • Systems that model sharing of control and power among the connected users and insitutions
  • Systems where trust dynamics are transparently defined and collectively understood (unlike e.g. Facebook, where you have no idea how they are monitizing your data or manipulating the information you consume)
  • Minimal to no costs to participate

Digital identity data that can be exchanged in a way that’s secure, reliable, scalable and convenient. This would have a positive impact on the economic future of Germany, Europe and the whole world, while at the same time enhancing the privacy of the individual. And to be a success, an ecosystem of verified digital identities must 

  • be usable by any organization across any sector, 
  • be interoperable, following open standards and schema,
  • be usable by any individual without exemption,
  • be secure and privacy preserving,
  • be human-centric, enabling data sovereignty,
  • be compliant, applicable to any regulatory environment,
  • be usable in regulated contexts and recognised by both public and private organizations,
  • be acceptable worldwide.

Among the many ways digital identities could be used across a wide range of industries include know your customer and anti money laundering compliance (KYC and AML) requirements for financial institutions, digital payments, single sign-on (SSO), proof of age, loyalty cards, official documents (such as passports and national ID cards), diplomas and more.

Fortunately, over the last few years a small industry working on self-sovereign identity (SSI) has emerged, with a solution that delivers these requirements.

How do we achieve an effectively digitized future?

Collectively, we refer to technologies and systems that meet the above criteria as “decentralized”, in that they are not proprietarily controlled or asymmetrically designed to disempower or manipulate some or all of the stakeholders in the system.

‘In the light of this, decentralized technology in general and decentralized identity management in particular have become of utmost importance and interest.’

It is our belief that future-proof technologies can only be developed in partnership. Especially when it comes to Web 3.0 infrastructure and digital identities, a decentralized, open-source approach is essential to secure the Internet as a democratic global infrastructure. Core areas of this global infrastructure should be seen as public services and operated in a way that ensures their accessibility and value for the whole population and economy. Decentralized technologies based on open standards will be essential for enabling cooperation at eye level in the national and, above all, international sphere.

Privacy by design and decentralization are concepts that promise us better solutions, but the pressure of time makes it all too tempting to take the quick and dirty approach. In Germany, for example, the federal government initially decided to store data from the nation’s Corona-Warn app on centralized servers, as reported by Reuters in April 2020. In response, multiple stakeholders like the Chaos Computer Club (CCC) loudly criticized the plans and the resulting public outcry forced the government to reconsider. The fact that the government heard the criticisms, re-evaluated its proposals and opted for a decentralized version of its Corona app instead – one  where data will only be stored on users’ phones instead of centralized government servers – was news well received by large parts of society. Talking to TechCrunch, decentralization campaigners of the the DP-3T project said, “DP-3T is very happy to see that Germany is adopting a decentralized approach to contact tracing.”

In the light of this, decentralized technology in general and decentralized identity management in particular have become of utmost importance and interest. The primary assumption is that centralized services create a level of control and insight into a citizens’ life that would significantly violate privacy (hence the need for GDPR) and also fail to provide an adequate level of security. Data leaks, breaches and cloning are just some of the problems faced on a regular basis, as this report from Deutsche Welle confirms. 

So what makes a digital identity?

The range of digital identities is broad. They can be limited to a simple combination of username/password (Web 2.0). They can be public/private keypairs (Web 3.0) with no reference to personal credentials. Or they can be linked to personally identifiable information drawn from official proof, such as an ID document. They can also include more detailed information, such as payment data, health information or evidence of training and employment.

A verifiable digital identity records data that contains the identity and, where applicable, other identity credentials (such as whether the bearer holds a diploma issued by a university and/or has a driver’s licence issued by a national authority) about a natural person or legal entity which have been issued or attested by one or more trusted sources, such as a bank.

Bringing these pieces of information together to paint a comprehensive picture of the respective person or entity requires a high degree of integrity and trust throughout the entire network.

However, the single sign-on authentication schemes offered by tech companies do not currently guarantee that the data entered by the customer is actually correct. In regulated sectors, such as banking or mobile telecommunications, companies are legally obliged to verify their customers’ data. Though they do so conscientiously, legally valid identification can often only be carried out with a break in the media chain (e.g. video identification or the German Post-Ident service.). And, in Germany, the electronic ID (eID) function of national ID cards has not been sufficiently accepted by consumers. 

Centralized Identity vs SSI

Putting people in control with SSI

The benefits of a decentralized identity based on a fully open infrastructure include:

  • users having full control over access to their identity data, through a facility such as an ID wallet on their smartphone,
  • identity data being transferable via standardized data formats, schemes and protocols,
  • decentralised data storage protecting against attacks and central system failures,
  • data of identity subjects being non-correlatable, thus protecting privacy,
  • Infrastructure based on open standards guaranteeing all citizens equal opportunities, participation, growth and inclusion,
  • data minimisation, ensuring identity attributes are only transferred if necessary.

What are the potential use cases?

Already, we can identify and address a number of use cases where decentralized identity could accelerate and scale digitization to a level that benefits the most. What’s more, these use cases may also show how decentralized identity provides a significantly higher level of security and trust, not only for citizens but also for the governments and organizations that adopt it.

To paint a better picture, here are some of the use cases that have arisen during the COVID-19 pandemic.

1. EduTech becomes essential

The crisis has been a wake-up call for the education sector. Teachers are still trying to figure out how video conferencing tools can be best used to communicate effectively with their students. Many companies are positioning themselves as the best solution for digital education, but most rely on centralized web technology.

Yet truly secure processes, ranging from registration for schools and universities to participation in exams online or issuance of digital diplomas that require secure authentication, are still rarely in place.

2. HealthTech makes its big appearance

The innovation industry should have the right digital products for the health industry already. It should be offering reliable solutions for everything from infection tracking and telemedical calls, to family doctor services, rapid testing and development of vaccines. But it is not. 

For many reasons, development and approval has been expensive and lengthy, and data protection has put a brake on the research benefits of shared health data in particular. Citizens, insurance companies, doctors, hospitals and governmental authorities are expected to now be more willing to drive digitization in the sector.

Patients could carry their health data with them at all times; including treatment history, x-rays, laboratory results and prescribed medication, as well as insurance data. In turn, doctors would gain instant access to medical records, make speedier diagnoses and be able to verify the health information they’re given about their patients.

A solution to connect

3. Remote work spreads 

Home working has gained much wider acceptance, with it frequently benefiting both employer and employee. Wherever physical presence is not a necessity, people are currently expected to spend more of their working time from home. For this to be properly effective, it will require innovation for both parties. Employers and employees will need the appropriate digital tools for remote work to access company information and online services seamlessly. This access needs to be fully customizable, adjustable and, of course, secure.

4. Faster, easier eCommerce for local retailers

Small businesses can no longer ignore the need for an online presence. The pandemic has accelerated take-up and innovation. Consumers expect to be able to order nearly everything online, be it pasta from the restaurant around the corner, virtual classes in anything from ballet to baking or delivery of pretty much any physical good you can think of. This clearly shows where we are heading. Accordingly, the demand for online shop solutions that anyone can use easily, customer and service provider alike, is vital.

Existing platforms, such as Amazon, are booming, but their monopoly positions are unhealthy and micro transactions rarely viable. Local solutions are required to supply everything a micro retailer needs (eg. order system, payment processing, delivery status messaging service and so on).  

When individuals have accounts in the shape of their digital identities that are reusable for the widest range of transactions, both consumers and micro service providers will benefit.

5. Efficient job placement

Record unemployment in Europe and the world will shape a new future for job platforms. This is less likely to be in how  companies look for skilled workers, more how jobseekers offer their services. Digital tools that help individuals document their diplomas and certificates, as well as attestations from previous employers, will be needed. Conversely, companies will require an efficient way to verify the authenticity of applicants’ documents.

Jobseekers could carry their employment history, qualifications, diplomas and references with them at all times.  Potential employers would then be able to instantly access and verify the trusted information of applicants.

6. Good cyber security is becoming a must

Cyber attacks have increased worldwide, particularly following the switch to home working. Remote work requires secure authentication to defend against attacks when data flows between the homes of the employees and company clouds, for example. Besides the increasing digitization of existing online services, there will be additional relocation in many areas (trade, education, health, government, etc) to a better decentralized infrastructure which provides improved flexibility and security. Centralized systems are not suitable – they represent honeypots for hackers. Decentralized technology paired with strong encryption, however, can provide the security and trust required.

7. Digital entertainment explosion

Immediate winners during the crisis include not only video conferencing and collaboration tools, but also video streaming platforms and chat services. And the great retreat into homes may not be as temporary as first thought. It’s quite possible that digital social interactions will become the 21st Century standard. The focus on small family units will create time at home that needs to be filled, with streaming videos being a case in point with big Internet companies already working to increase the rollout of the next generation gaming and eSports platforms. This will require privacy controls and, to protect minors, the ability to determine age accurately.

8. More efficient eGovernment

The performance of many eGovernment solutions remain far from where they could or even should be. There is much room for improvement in digitization within authorities and the public sector as a whole. At present, only a few Baltic and Nordic countries can claim to have such services as the “once-only-principal” in place where citizens and companies only have to provide certain standard information to the authorities and administrations once. However, these are highly centralized and only work because of a pre-existing culture of trust that can’t be assumed elsewhere. Here, again, decentralized technology paired with encryption can create the security and trust required.

9. Travel Documents that meet all needs

We exist in a world of constantly changing travel constraints and cross border requirements – who can travel where, tracking where travellers have previously been, proof of vaccination, verifiable test results. With decentralized technology, all travel documents can be verified securely, more quickly and more reliably than with current paper versions or centralized databases.

10. Digital money for all

Even before the crisis, hard cash was becoming less welcome in many countries. Now, cashless payment has become the standard in an increasing number of outlets. At the same time, banks’ projects to create central bank-based digital currencies (CBDCs) using blockchain technology are progressing. A test program for a state digital currency started in South Korea in April 2021. The EU has announced the introduction of a digital Euro within the next few years. Decentralized digitization of money will enable cashless transactions for everyone, replacing the expensive and often cumbersome online payment solutions in current use.


All in all, recent developments underline the trend of digitization in almost all spheres of life, be it public or private. With this in mind, it makes sense to increasingly focus on digital privacy and how to protect and strengthen an individual’s identity online, while also keeping up to date with the fast developing digitization. The continuing Covid crisis, once more, offers an opportunity to implement decentralization in a trustworthy way. This article hopes to have shed a light on the significance of this step, as digital privacy and data sovereignty might quickly become neglected when digitization takes up its speed.