Identity theft has become one of the most dangerous cybersecurity problem in the digital age. With the increase of AI capabilities, with the digitization of financial transactions, healthcare records and personal data, cybercriminals have more opportunities as time passes by to exploit vulnerabilities.
How has identity storage changed through the years
In the early days of the web, when standalone websites first emerged (often referred to as Web1), identity storage was mostly centralized. Regardless of which website you registered an account with, your data was stored directly in that website’s database.
Moving on through the years toward Web2, tech giants like Google or Facebook popularized the so called Federated signups and logins. Federated identity is an improvement over centralized identity that allows users to log in to multiple services using a single set of credentials. These credentials are managed by a trusted third-party provider. Some examples are: Google Sign-In, Facebook Login and SAML-based enterprise SSO.
Although Federated Identity offers the convenience of using a single Google or Facebook account across multiple platforms, it has also led to greater centralization of identity storage. As a consequence, for convenience many smaller websites no longer build their own sign-up and login systems: opting instead to integrate SSO (Single Sign-On) since it is faster to implement and widely accepted by users as a standard.
As a result one single breach can expose the private information of tens of millions of users, putting it in the hands of malicious actors who can exploit it to commit identity theft and impersonate individuals.
Since the pandemic, internet usage and the creation of personal accounts have increased dramatically, leading to a significant rise in stored data. Since most of this information is kept on centralized servers, cases of identity theft have also escalated.
Lets talk numbers
Here are some worrying data, painting a clear picture of how serious identity theft worldwide has become: in 2023 identity theft has cost over $43 billion to their victims, with more than 422 million personal records exposed. The average cost per person was approximately $1,500, but in some cases, people lost their entire life savings.
Identity theft often occurs when centralized databases containing sensitive personal information are compromised. Here’s how it happens:
- As mentioned centralized databases store vast amounts of personal data (e.g., social security numbers, financial details, medical records). If hacked, all user data is exposed at once.
- Cybercriminals use techniques like SQL injection, phishing, malware or credential stuffing to gain unauthorized access to centralized databases.
- Once inside, hackers retrieve sensitive user information and either use it themselves or sell it on the dark web for others to exploit victims.
With the increasing sophistication of these attacks, the need for a more secure identity system has never been greater, and here is where SSI comes into play.
How SSI can help solve identity theft
Self-Sovereign Identity (SSI) is a brand new approach to digital identity that gives control back to the users. Instead of relying on centralized databases, which, as previously described, are prone to being hacked, SSI allows individuals to manage their own identity data securely.
Here is a breakdown of how it works:
- Instead of a company storing your personal data, SSI uses blockchain and decentralized networks to secure identity credentials.
- Users receive tamper-proof digital credentials from trusted issuers (e.g., governments, universities, banks) called Verifiable Credentials or VCs, and store it in a so called digital wallet. These credentials contain the private keys, which only the holder has, and are validated with public keys which are stored in the blockchain.
- When asked to identify, users can share only the needed information via their digital wallet, instead of exposing full identity details. This eliminates the need for passwords, reducing the possibility of attacks.
- Since credentials are not stored in the blockchain, but on your personal wallet, hence not being all centralized in one single database, hackers are disincentivized.
If you want a more in-depth explanation of how SSI works, you can read our Self-Sovereign Identity (SSI) article.
There are a few implementation and approaches of SSI being developed in the world that could help in real-world scenarios in terms of security, protecting personal data and preventing identity theft through decentralized and blockchain-based solutions.
Conclusion
The increase in identity theft highlights the urgent need for more secure identity solutions. Self-Sovereign Identity (SSI) offers a way forward: it give power back to users to protect their personal data and enables businesses and governments to verify identities without risk.
Of course great power comes with great responsibility: you are the only owner of your keys, there is no bank to call if you lose access to your wallet. So make sure to store your keys in a safe place.
As adoption grows, SSI has the potential to eliminate identity theft, by disincentivizing hackers and ensuring a safer and more privacy-focused digital world.