The terms "digital identity" and "digital credentials" are often used interchangeably, but they refer to related yet distinct concepts. Understanding the difference clarifies how modern identity systems work and why the shift to verifiable digital credentials represents a fundamental change in how trust operates online.
What is digital identity?
Digital identity is a broader concept that encompasses all the ways we are recognized, remembered, and responded to in digital contexts. Your digital identity encompasses your accounts, authentication history, attributes (such as name, age, and address), and the relationships between these elements across various systems.
Digital identity answers the question: who are you in the digital world, and how can that be established?
Traditionally, digital identity has been managed through accounts, which consist of a username and password that grant access to a service, with the service provider storing information about you in its database. This model creates silos: your bank knows certain things about you, your employer knows others, and your healthcare provider knows still more. None of these systems interoperate cleanly, and each stores data that can be breached.
What is a digital credential?
A digital credential is a specific, verifiable assertion about a person or entity. It is a building block of digital identity, a discrete piece of information, issued by a trusted authority, that can be presented and verified independently.
Examples of verifiable digital credentials include a mobile driver's license issued by a state DMV, a digital diploma issued by a university, a professional license issued by a regulatory board, or a proof of insurance issued by an insurer.
What makes these credentials "verifiable" is cryptography. A digital signature from the issuing authority accompanies each credential. A verifier, whether a bank, employer, or government agency, can verify the issuer’s digital signature using the issuer’s public key, and, where applicable, check credential status without needing to contact the issuer directly. If the signature is valid, the credential is authentic. If the data has been tampered with, verification fails.
How do verifiable digital credentials change identity?
The shift from account-based identity to credential-based identity has significant implications. In account-based systems, a service provider holds your data and controls your access to it. You prove your identity by authenticating to their system, and they decide what to do with the information.
In credential-based systems, you hold verified information about yourself and present it when needed. The verifier doesn't need to store your data or query a central database, they simply confirm the cryptographic proof and act accordingly.
This architecture enables selective disclosure: sharing only the information required for a transaction. A bar needs to know you're over 21, not your home address. An employer may need to confirm degree attainment, disclosing the issuing institution only when required for the use case. Credentials can be designed to answer specific questions without exposing unnecessary data.
Why does this distinction matter?
The distinction matters because it shapes who holds power in identity systems. Account-based identity concentrates data in centralized silos, attractive targets for attackers and sources of surveillance risk. Credential-based identity distributes control to individuals, who carry verified information in their own wallets and decide when to share it.
Verifiable digital credentials are the building blocks; digital identity is the structure they create. By shifting from identity-as-accounts to identity-as-credentials, we can build systems that are more secure, more private, and more respectful of individual autonomy.
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