Decentralized identity and authentication: Empowering user-controlled digital identities

Instead of relying on corporations to vouch for your identity, DID solutions allow users to own and control their credentials.

In a previous post, we talked about the importance of human-readable web3 addresses to the overall Open Money user experience. Much like how Ethereum Name Service (ENS) streamlines blockchain interactions by replacing long wallet addresses with human-readable names, DID solutions are redefining how we prove who we are in a decentralized world.

The problem with web2 authentication

For years, authentication online has been dominated by centralized platforms. "Sign in with Google," "Sign in with Facebook," and similar solutions provide convenience but come at the cost of control. Users hand over personal data, rely on third parties to manage their identity, and remain subject to ever-changing terms of service.

The fundamental issue is that, in web2, identity is borrowed, not owned. Your access to digital services is permissioned by centralized entities that can revoke it at any time. This model is inherently fragile and exclusionary, particularly for people who lack access to traditional identification systems.

Here's just one example of what can happen when there is an over-reliance on centralized authentication and control:

Enter decentralized identity

Decentralized identity changes the power paradigm. Instead of relying on corporations to vouch for your identity, DID solutions allow users to own and control their credentials. At the heart of this system are cryptographic keys and decentralized identifiers stored on blockchain-based networks.

One of the most compelling use cases is Sign in with Ethereum (SIWE) — a permissionless, censorship-resistant authentication method that replaces traditional logins. Instead of relying on an email and password stored in a corporate database, SIWE allows users to verify their identity simply by signing a message with their wallet.

The benefits are significant:

Self-sovereignty: Users fully own and control their identity. No reliance on centralized intermediaries.
Interoperability: A single identity can seamlessly work across multiple applications and services.
Privacy: Authentication happens without unnecessary data collection or tracking.

The rise of DID in web3 applications

The growing adoption of DID solutions is unlocking new possibilities. For instance, ENS names aren’t just readable wallet addresses — they are web3 identities that can be linked to decentralized social media platforms like Farcaster, used for secure messaging, and integrated into governance systems.

Similarly, platforms like Verifiable Credentials (VCs) and decentralized authentication protocols such as Lit Protocol and SpruceID are paving the way for secure, on-chain reputation systems. The result? A more user-friendly, secure, and truly decentralized digital experience.

The road ahead

The shift to decentralized authentication isn't just about convenience—it's about reclaiming control. As more apps and services integrate DID solutions, we’re witnessing the emergence of a digital world where identity is portable, private, and owned by the individual.

Much like how ENS makes blockchain interactions intuitive, decentralized authentication is removing friction from web3 adoption. It’s not just about logging in—it’s about unlocking the full potential of an open and user-controlled internet.

This post is part of the Open Money Project, an ongoing series that forms the basis of a longer work. Subscribe to get a weekly update as it unfolds.