A digital credential (DC) is described as a kind of tamper-proof credential stored, controlled, and shared by a user. It features data about the holder and may include elements like a name, photograph, ID document numbers, and all other critical information.
Notably, the DC can be cryptographically validated by a third party to determine that the data provided are genuine and have not been changed since the issuer provided them.
The primary purpose of a digital credential is to guarantee that a holder retains control of their personal information. It also ensures that the entire process becomes decentralized and that the verification process of the acquired data has not been tampered with and does not need the involvement of the original data issuer preventing privacy leakage. The technology thrives on decentralized identity and/or self-sovereign identity.
Digital Credentials Use Cases
Digital credentials support a user-centric and user-controlled strategy for data sharing with a wide range of applications across Web3 and Web2 space. It ranges from Crypto Lending and DeFi, Metaverse and Banking, to Travel and Healthcare, and a lot more.
A Digital Credential (DC) stands as a digitally authenticated testament, substantiation, or validation of a user’s proficiency, skill, or jurisdiction. This credential is proven and endorsed by an authoritative third party that has the necessary competence or assumed ability to grant such recognition.
These digital credentials may be used for high-trust data like credit scores and know your customers (KYC), to low-trust data such as addresses and personal preferences. For example, as users become highly mobile between firms, they can re-use their KYC data to adapt rapidly and smoothly without having to repeat the process often. The same case applies to bringing credit scores and files with a user to access customized CeFi or DeFi lending products.
Looking at the low-trust side in the e-commerce/retail sector, digital credentials let users share relevant details quickly without having to type all of them out severally on every platform, for example. Since the data comes from a trusted source, the seller is confident in its trustworthiness and accuracy. This minimizes risk and friction for the customer, the possible hiccups in the checkout for the seller, and it averts cases of fraud.
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Interestingly, digital credentials also offer an excellent strategy for organizations to share certifications and audit results. This is mostly relevant when the correct results can be passed up the chain and shared with all relevant users to secure the whole supply chain-facing organization. It executes the entire process digitally without having to involve any central authority.
Ultimately, from a community engagement point of view, digital credentials are a game-changer. They help incentivize and engage all active Web3 communities via learning credentials. Thus, they can also protect users from fraud and scams across Discord and Telegram.
The Digital Credentials’ Lifecycle
Three entities are important for the lifecycle of digital credentials. They include the holder of the data, the issuer of that data, and the requester of these data.
A great example features a third-party requester, such as a potential employer, requesting for proof of identification. Being a holder, the hob candidate presents their passport in the form of a photo and shares it with a requester in an unsecured email. For the requester to confirm the identity, they have to send the provided information to the issuer, maybe the home government, and request their review of the provided data to validate its authenticity.
Given that many individuals have no expertise to navigate this procedure, the requester’s options are often limited to examining the passport’s name and photograph, and then assessing this information regarding their alignment with the job applicant. While the potential applications for verifying identity and credentials are extensive, this instance underscores the fundamental steps and weaknesses inherent in the current system.
In the case of digital credentials, there are three entities, although their roles are different. Notably, the issuer gives the holder data and that claim is signed cryptographically. The issuer’s signature is registered to a valid data registry, including a blockchain for later verification. The holder retains custody of their data and they can decide what to share with any interested party.
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Where verification of a claim is needed, the holder can send the essential claim to a third-party verifier, which conducts the validation for the benefit of the requester. The verifier can take the tamper-proof file and review the signature to determine whether it is similar to the one published on the blockchain. If these signatures match, it verifies the data from the issuer and confirms that they have not been tampered with.
Since the signature is immutable and stored on-chain, the issuer does not get involved with the verification process. Crucially, personally identifiable information is not stored on the ledger. All information is secure and can be privately shared supported by the on-chain trusted identifiers signatures and off-chain storage of personal data.
It means that no personally identifiable information is stored on-chain.
Digital Credentials vs. Surveillance Capitalism
User data is normally generated or collected via surveillance and monitoring by firms, analyzed, aggregated, and monetized, mostly without any participation of the individual. Hence, this personal data is rarely under the control of the user since it is stored with and owned by firms. Mostly when data is used outside of where it was generated originally, the user’s behavior is tracked or utilized to generate a lot more data, for example, Google login observes the user’s behavior.
That is the exact opposite of digital credentials. Personal data lives and is controlled by the individual owner. Hence, it is expected to be private by default. Digital credentials are not connected to where they were issued or originated, meaning they cannot be tracked.
Digital Credentials vs. NFTs And SBTs
A major benefit of digital credentials compared to SBTs and NFTs is that credentials are off-ledger, which means no personally identifiable information is stored on-chain. Hence, all information is private by default.
Secondly, digital credentials are revocable (meaning an issued certificate has expired) and suspendable through temporary revocation. Also, they are composable. For instance, many combinations are probable without having to reveal everything. Ultimately, just like the SBTs, credentials are non-transferable, although they can be readily re-issued.
SBTs and NFTs are stored on-ledger and NFTs are public by default. While non-fungible tokens are transferable, SBTs are not. There are, nonetheless, some touches around private NFTs, but it does not change the way NFTs are principally designed.
