Digital Identity Wallet Benefits and Risks

Digital identity management is no longer a luxury but a necessity. This article explains what a digital identity wallet is and how it works. It will also discuss digital identity wallet benefits and risks, limitations, and use cases.

Our world continues to experience substantial technological changes which has made it easier to accomplish tasks and enhance productivity. Of all the technological innovations already in place, the introduction of blockchain technology which has helped create decentralized applications or DApps has been a game changer for digital identity management and makes it possible to better manage identities with digital identity wallets.

The Covid-19 pandemic forced institutions and governments to rethink their approach to identity and access management. The digital identity wallet benefits and risks listed in this article will address identity security, fraud, and privacy.

What Is a Digital Identity Wallet, and How Does It Work?

A digital identity wallet is an essential identity management application that allows users to store, secure, and manage digital identity keys. The keys stored in a digital identity wallet can perform various tasks such as signing statements, conducting transactions, verifying credentials, and filing documents or claims.

In most cases, a digital identification wallet would be issued and overseen by an government entity to identify an individual online and offline. Digital ID wallets contain various attributes and may:

• have personal attributes like a social security number, name, place, date of birth, biometrics, citizenship details, and more, depending on the laws and requirements.
• differ from one country to another. For instance, citizens in India are given a unique ID number, while those in Finland get a unique mobile ID. In Germany, individuals are assigned an eID. These attributes are used to identify an individual and include a digital identity certificate.

A digital ID wallet makes it easier to prove who you are, share personal data, and access services. Moreover, it offers users unmatched convenience and the freedom to decide how to use their personal information. Above all, a digital identity wallet provides privacy and is a powerful tool to overcome fraud and enhance productivity.

The European Commission has already made its plans for a digital identity wallet clear. The commission seeks to launch a self-sovereign identity wallet that allows users to protect their data and personal information. Users will no longer have to carry stacks of documents to identify themselves when accessing services.

The good news is that self-sovereign identity wallets allow users to share only the required credentials safely and for a needed period of time.

Digital Identity Wallet Benefits

The adoption of a digital electronic wallet will benefit both the public and institutions. It will allow users to access services using their mobile phones while institutions will be able to identify customers, receive information, and validate data. With all the identity management challenges and availability of technical solutions, there is no better time to launch a digital identity wallet solution.

Here are some of the benefits of electronic digital wallet for identification:

Storage of Essential Credentials

A digital identification wallet works just like a leather pouch. It stores all the essential documents and information that you carry with you. When you start using a digital wallet, it will store the information and make things easier for you:

• Is secure and protects personal data.
• Makes data easily accessible.
• Offers complete control and privacy.

You Are in Control

One of the main benefit of a digital Identity wallet is that it gives you complete control over your data and credentials. You will have the freedom to decide whom to share the information with and for how long. Above all, individuals can determine the amount of information they will share with the other party. This way, users will never have to share unnecessary details again.

For instance, you can provide and confirm your address without having to share your social security number, date of birth, and name. The information you will share will be instantly verified by the other party giving you immediate access to your rights and the service you need.

Establish Secure Connections With Other Parties

A digital identity wallet is also beneficial to interact with others. It allows you to establish encrypted connections with other parties. You can use this app to exchange messages and share information without having to worry about safety.

Establishing connections will be as easy as scanning a QR code with your digital identity wallet. The wallet gives you the freedom to create your QR code so that other parties can easily connect with you.

Economic Benefits

As an example, the creation of a digital identity wallet will generate more than 9.6 billion Euros for the European Union and create more than 27,000 jobs within five years.

Positive Environmental Impact

Adopting an electronic identity wallet will reduce emissions due to public services. It will also cut down on paperwork, making the world a better place for future generations.

Enhanced Convenience

Citizens will no longer have to carry all their documents all the time. The adoption of the electronic identity wallet will give individuals a tool that allows them to store all their essential documents in one secure place.

Limitations of a Digital Identity Wallet

Like any other innovation, the digital identity wallet technology is also set to face some setbacks. Some of these limitations include:

Time and Money Limitations

Time and money are probably the most significant limitations of digital identity wallets. For instance, EU countries that want to join the program must invest in special software and hardware to facilitate these operations.

Security

Security is one of the biggest benefits of electronic identity wallets. However, it can also be a concern since the users’ devices will support the mobile application’s security. Smartphones without adequate protection will be susceptible to security risks and they can be stolen or lost.

Digital Identity Wallet Risks

Digital identity wallets can deliver exceptional results for individuals, the private sector, and governments. However, users must be privy to some of its risks to make it work. For example, the digital identity wallet is dependent on a device and while this is convenient, it can also be a challenge if the device breaks down, runs out of battery, or faces network problems.

Here are some of the potential risks associated with digital ID wallets:

1. Security Breaches: One of the primary risks is the potential for security breaches. If your digital ID wallet is compromised, an attacker may gain access to sensitive personal information, such as your driver’s license, passport, or other forms of identification.
2. Identity Theft: If a malicious actor gains access to your digital ID wallet, they could use your identity to commit various forms of fraud and identity theft. This could have serious consequences for your financial and personal well-being.
3. Data Privacy Concerns: Storing personal identification documents and data in a digital ID wallet means that this information is potentially accessible to service providers and the wallet provider itself. Users must trust these entities to protect their data adequately.
4. Loss of Device: If you lose your mobile device or the device containing your digital ID wallet is stolen, there’s a risk that the thief could misuse your digital ID and access your accounts or impersonate you.
5. Biometric Data Vulnerabilities: Many digital ID wallets use biometric authentication methods, such as fingerprint or facial recognition. These can be vulnerable to spoofing or hacking if not properly secured.
6. Phishing and Social Engineering: Attackers may attempt to trick you into revealing your digital ID wallet credentials through phishing emails, fake websites, or social engineering attacks.
7. Incompatibility and Interoperability Issues: Different regions and organizations may use different standards and technologies for digital ID. Compatibility issues could arise if your digital ID wallet is not accepted or recognized by certain entities.
8. Regulatory and Legal Issues: The legal framework around digital ID is still evolving in many places. There may be regulatory changes or legal disputes that impact the use and security of digital ID wallets.
9. Dependency on Technology: Relying on a digital ID wallet means that you’re dependent on technology and the infrastructure that supports it. Technical issues, outages, or system failures could temporarily prevent you from accessing your digital ID.

To mitigate these risks, it’s essential to take security precautions, such as using strong, unique passwords or PINs, enabling two-factor authentication, keeping your device and software up to date, and being cautious about the websites and apps you use for digital ID transactions. Additionally, choose reputable digital ID wallet providers that prioritize security and privacy. It’s also advisable to stay informed about the latest developments in digital ID technology and any changes in regulations that may affect its use.

Digital Identity Wallet Use Cases

Digital identity wallet topic is already being considered by many countries. For example, the EU commission has already announced its plans to have a digital identity wallet that will allow EU citizens to access public and private services using their mobile phones. The Covid-19 pandemic underscored the need for safe and convenient online services. Moreover, Cardano Prism, a significant blockchain provider for digital identity wallets, is set to supply the EU with digital identity wallets.

The EU has adopted Cardano Prism to facilitate secure identity management and storage of electronic keys. The platform will accommodate a range of use cases and solve problems across multiple industries. Major technology players like Stripe, MasterCard, and Apple have already acquired a digital identity verification company known as Ekata. These companies seek to give their consumers a seamless and user-friendly experience.

Several countries across many continents such as Africa have started to implement and use electronic ID wallets to create digital IDs for their citizens who until now had no way to prove their identities and claim their assets.