Decentralised Identifiers (DIDs) are digital IDs that let users verify their identity without relying on companies or governments. Unlike traditional login systems, DIDs give users direct control of their data and reduce dependence on centralised databases that can be breached or misused. The decentralised identity market is growing quickly, expected to reach $24.22 billion by 2029, driven by rising concerns about data leaks and privacy failures. DIDs address these issues by removing central points of failure and returning data ownership to users.
This guide covers what DIDs are, how they work, key methods, practical use cases, and how to start using them. Whether you are a developer, product manager, or user interested in secure authentication, DIDs offer a significant improvement in how digital identity is managed.
What exactly is a DID?
A Decentralised Identifier is a unique identifier that is globally recognised and under your control, eliminating the need for permission from any centralised provider. Consider it a username that you genuinely possess; no corporation can take it away or deny you access. On July 19, 2022, the W3C officially approved the DID 1.0 specification as a standard, establishing it as a recognized web standard.
Each DID is composed of a distinct structure that includes three components: the scheme, the method, and the unique identifier. The format consistently begins with “did:”, followed by a method name such as “ion” or “ethr”, and concludes with a unique string. For instance: did:example:123456789abcdefghi. In this context, “did” represents the scheme, “example” signifies the method, and the remaining elements constitute your unique ID.
The power of DIDs lies in their ability to reference DID Documents, which are structured files that include your public keys and service endpoints. These documents do not retain personal information on blockchains; instead, they store cryptographic keys that demonstrate your control over the identifier. Your sensitive data remains off-chain, disclosed only at your discretion.
To understand how DIDs (and identity credentials) fit into the broader world of blockchain tokens and intangible assets, check out our guide on what constitutes a digital asset.
How DIDs Work?
DIDs operate through a combination of methods, documents, and resolvers that collaborate to create trust without relying on a centralised authority. Every DID method clearly outlines the procedures for creating, reading, updating, and deactivating identifiers within a particular network. More than 150 registered DID methods exist, each tailored for various use cases.
The DID Document contains public keys used for cryptographic verification, authentication methods, and service endpoints. Hashes and public keys are the sole inhabitants of the blockchain, whereas your actual credentials are securely stored off-chain in an encrypted format.
This division guarantees confidentiality while upholding the ability to verify.
When an individual needs to verify your DID, a resolver queries the relevant registry and retrieves your DID Document. The resolver verifies the cryptographic signatures and ensures that you possess the private keys. This method employs public-private key cryptography, the very technology that safeguards Bitcoin transactions.
DID Methods & the Ecosystem
DID Method | Technology | Best For |
did:key | Cryptographic keys | Peer-to-peer interactions |
did:ion | Bitcoin + Sidetree | High-scale public networks |
did:ethr | Ethereum | DApp integration |
did:web | HTTPS/DNS | Enterprise adoption |
did:sov | Hyperledger Indy | Privacy-focused applications |
Various DID methods cater to distinct needs, taking into account factors such as scalability, cost, and security requirements. The following are the most significant methods in use today:
- did:key – Creates identifiers straight from public keys without relying on any blockchain. Ideal for interactions between peers where permanent storage isn’t necessary.
- did:ion – Microsoft’s ION (Identity Overlay Network) operates on Bitcoin through the Sidetree protocol. ION made its debut on the Bitcoin mainnet in March 2021, successfully processing tens of thousands of operations per second through the batching of DID operations.
- did:ethr – Utilises Ethereum smart contracts via the ERC1056 standard. Widely recognised for decentralised applications requiring blockchain verification.
- did:web – Employs conventional web infrastructure, enabling organisations to manage DIDs on their own domains. Excellent for enterprise implementation.
- did:sov – Driven by Hyperledger Indy and the Sovrin Foundation. Emphasises privacy-preserving self-sovereign identity utilising a permissioned ledger.
Key Benefits of Why DIDs Matter
Decentralised Identifiers offer meaningful advantages that traditional identity systems cannot match. The benefits below highlight why DIDs are becoming a core technology for secure, flexible, and user-controlled digital identity.
- Self-Sovereignty: You possess your identity independently, free from intermediaries managing access. No organisation can restrict your access or suppress your online identity in the same way that conventional platforms can.
- Privacy & Selective Disclosure: Rather than providing your complete driver’s license to verify your age, you only disclose the relevant information. Zero-knowledge proofs allow you to demonstrate truths without disclosing the foundational information.
- Minimised Vulnerabilities: Centralised databases attract hackers. DIDs remove single points of failure by spreading identity verification throughout decentralised networks.
- Interoperability: Standards allow various wallets, issuers, and verifiers to collaborate effectively. Financial institutions, healthcare organisations, and governmental bodies can authenticate credentials seamlessly without the need for tailored integrations.
Limitations, Risks & Open Challenges
DIDs present notable benefits. However, they also come with challenges that both users and developers need to take into account:
Challenges with Usability:
- For the average user, managing private keys can be quite challenging.
- Misplace your key, and you risk losing your identity for good.
- Key recovery mechanisms frequently bring back elements of centralisation.
Questions on Governance:
- Who is responsible for managing the resolver infrastructure and overseeing the code maintenance?
- In what ways do method specifications change as time progresses?
- How do various approaches present distinct compromises between security and convenience?
Privacy Concerns:
- Excessive information storage on public blockchains poses significant risks.
- Utilising the same DID across various services facilitates tracking.
- It is advisable to use distinct DIDs for various contexts.
Ecosystem Fragmentation:
- More than 150 methods exhibiting different levels of maturity
- Conflicting standards lead to uncertainty for developers
- Conflicting implementations hinder widespread adoption
Since control of your DID depends on keeping your private keys safe, it’s worth reviewing common threats like wallet malware and seed-phrase scams in our guide on seed phrase scams & wallet malware.
Real-World Use Cases
Decentralised Identifiers are already being adopted across industries, proving their value beyond theory. The examples below illustrate how DIDs improve security, verification, and efficiency in real-world systems.
- Login & Authentication: Passwordless authentication removes the risks of phishing attacks and credential stuffing. Your wallet demonstrates your control over the DID without the need to transmit passwords across networks.
- Verifiable Credentials for KYC: Upon successful completion of identity verification, you are issued a reusable credential. Banks lower onboarding costs by 30-50% and decrease recurring verification expenses by as much as 60%.
- Supply Chain & IoT: Every shipment is assigned a unique DID, accompanied by verifiable credentials that demonstrate authenticity and compliance. The Port of Bridgetown in Barbados provides digital Certificates of Clearance through the use of verifiable credentials.
- Government & E-Residency: The European Union’s EUDI Wallet under eIDAS 2.0 allows citizens to verify their identity throughout all member states. Estonia’s e-residency initiative showcases a commitment to digital-first governance.
How to Get Started with DIDs For Developers & Product Teams
Implementing DIDs requires a structured approach, especially for teams building secure identity features into their products. The steps below outline how to evaluate your needs, select the right DID method, and create a functional proof-of-concept using industry-standard tools.
Step 1: Define Your Requirements
- Do you need high privacy with minimal on-chain data?
- Is credential revocation critical for your use case?
- Should you use blockchain-based or non-blockchain methods?
Step 2: Choose Your DID Method & Tools
- For peer-to-peer apps: Consider did:key or did:peer
- For public verifiability: Explore did:ion or did:ethr
- For enterprise: Evaluate did:web for easier adoption
Step 3: Build a Proof-of-Concept
- Create a DID using your chosen method
- Issue a simple verifiable credential
- Implement resolution and verification logic
- Test the complete flow from creation to verification
Recommended Tools & Libraries:
- DIF (Decentralised Identity Foundation) provides open-source libraries
- Universal Resolver supports multiple DID methods
- Veramo Framework offers TypeScript-based tools
- W3C maintains the official DID specification repository
Conclusion
Decentralised Identifiers mark a major shift in digital identity by giving users control over their credentials and removing central points of failure. They address long-standing privacy and security issues in traditional systems, and growing adoption by governments and enterprises shows the technology is ready for real-world use. Understanding DIDs is valuable whether you build applications, manage user access, or care about online privacy, as the ecosystem continues to mature with better tools and clearer standards.
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Frequently Asked Questions
Do DIDs Require Blockchain?
No. Some DID methods like did:key and did:peer work entirely off-chain using cryptographic keys. Blockchain-based methods such as did:ion and did:ethr provide public verifiability and tamper resistance. Choose based on your needs for decentralisation, cost, and scalability.
How Are DIDs Different from Decentralised Domain Names?
DIDs identify people, organisations, or devices, while decentralised domains identify websites. DIDs rely on cryptographic verification and do not require DNS or naming fees. In contrast, decentralised domains like ENS still depend on naming services.
What if I Lose My DID Private Key?
Losing the private key results in losing access to that DID permanently. Some systems offer social recovery, but these introduce partial centralisation. Secure backups and hardware wallets are recommended for critical identities.
Can One Person have Multiple DIDs?
Yes. Users can create different DIDs for different contexts, such as work, personal use, or device identity. This improves privacy by preventing cross-correlation between activities.
Are DIDs Compatible Across Different Wallets and Platforms?
Many wallets and identity tools follow W3C DID standards, enabling broad interoperability. Compatibility depends on the DID method chosen, so selecting a widely supported method improves integration across platforms.
