Centralized digital identities create single points of failure. Identity system architecture determines whether empowerment or surveillance prevails

Opinion by: Fraser Edwards, co-founder of Cheqd

Governments are quietly racing to redefine identity documents for the digital era. China enacted new legislation called the National Network Identity Authentication, commonly referred to as internet ID. Citizens receive a unique digital ID code from real name and face scans. The system is designed to link online activity to verified real-world identities across participating platforms, according to publicly available descriptions of the pilot. As of May 2025, around six million people had already enrolled during the pilot phase.

Bhutan has a blockchain-based national identity for its 800,000 citizens. The infrastructure that determines how people prove their identity is being rebuilt from the ground up.

Many are choosing between the rollout of centralized digital identity systems and those based on blockchain technology.

How these systems are designed will determine whether they empower citizens or extend state control.

The promise and the pitfalls

Digital identity sits at the intersection of privacy, security and control. At its best, it can simplify life by eliminating repetitive checks, reducing fraud and giving individuals control over their personal data. At its worst, it can become the connective tissue of a global monitoring system, linking every financial transaction, online interaction and movement to a permanent record.

Digital identity is neither intrinsically virtuous nor nefarious. Its outcome, however, depends on the principles that shape it. Built well, it can restore trust, transparency and security across digital life.

Built poorly, it risks placing every aspect of identity, movement and behavior under permanent observation.

The technology to build either outcome already exists. Blockchain and cryptographic proofs can make identity portable, verifiable and private. If centralized models prevail, where data is stored, queried and monitored by a single authority, however, the same systems could hard-code surveillance into everyday life. The real contest is not over whether digital ID arrives, but which version of it the world adopts.

Centralized models create single points of failure. One breach or policy shift can simultaneously expose or restrict millions of people. When everything from financial access to travel depends on a single database, identity itself becomes a potential lever of control.

Some identity systems already include background “phone home” functions that report when and where credentials are used. While often designed for analytics or fraud prevention, this capability introduces the technical potential for surveillance. Once that switch exists, experience shows it rarely stays off for long. This does not mean its solution should be abandoned; rather, it should be built with privacy and security in mind.

Digital identity around the world

Countries that have implemented national digital identity systems reveal both the benefits and the risks associated with them.

Estonia, often cited as a digital pioneer, illustrates both the promise and the danger of a centralized digital ID. In 2017, they had to revoke nearly 1 million digital ID “cards” after cybersecurity experts found vulnerabilities in their cryptography. Despite that failure, the same system has enabled citizens to file taxes in minutes, sign contracts remotely and access almost all public services online.

Switzerland offers a different path. Its first national identity proposal was rejected in a 2021 referendum. Support grew after a redesigned model was introduced, featuring clearer safeguards. The difference was trust — its new e-ID is voluntary and stores data on users’ own devices rather than government servers, in software that only shares the necessary information and can be audited independently.

India’s Aadhaar program illustrates the scale and risks associated with a system that becomes unavoidable. With near-universal penetration, it has shifted how millions access welfare, healthcare and finance, and was praised for reducing fraud by $10 billion. But it has also faced repeated breaches that have compromised the personal details of more than 1.1 billion people, according to WEF reports, and has been criticized as a form of "digital coercion" due to citizens’ dependency on this ID to access essential services.

The global pattern is consistent. Digital identity is not inherently harmful nor beneficial; its influence and power comes from its architecture. Centralized models, even successful ones, carry the inherent risk of misuse. Decentralized control creates systems that can empower citizens instead of monitoring them.

Decentralized identity as the way forward

Bhutan shows how digital identity can work differently in practice. The country has become one of the first to implement a public blockchain for its national ID system, utilizing Decentralized Identifiers (DIDs) on Ethereum, which enables citizens to hold and control their own credentials.

Instead of a single central database, verification occurs through cryptographic proofs that confirm only the necessary information without exposing it. By distributing control across a network of participants, decentralization reduces reliance on the good faith of a single operator deciding unilaterally how identity is used.

A 15-hour Amazon Web Services outage that halted Coinbase, Robinhood and MetaMask brought the issue of centralized servers to the surface.

At the core of this approach are DIDs and Self-Sovereign Identity (SSI). Allowing individuals to store their own credentials from a digital wallet, deciding what to share and when, without storing all their personal data into one silo or honeypot. For example, a user can prove they are over 18 using their driving license without disclosing their address or demonstrate their right to work without sharing every passport detail.

Zero-knowledge proofs can further extend this by allowing facts to be verified mathematically without sharing the underlying details or data, providing a simple “yes” or “no” response to verification requests. Together, forming a decentralized framework for digital identity that works on a global scale while still keeping privacy and control in your hands.

The architecture of freedom

Every digital identity system reflects who holds power and who defines trust.

Adding decentralization to the mix can make it more complicated. You have to wonder who actually controls the data and who holds accountability. This can become especially tricky in a brand-new industry of decentralized groups.

Yet the advantages remain clear. Distributed systems remove single points of failure, return control to individuals and build transparency through shared verification rather than enforced trust. Offering a model where digital identity strengthens security and trust without reducing citizens to data points.

Digital identity is inevitable. The question is not whether it arrives, but which model prevails. Centralized systems, no matter how carefully built, will always carry the looming risk of misuse. Decentralized identity offers a way forward that enhances both privacy and practicality, embedding freedom into the infrastructure of trust.

Opinion by: Fraser Edwards, co-founder of Cheqd.

This opinion article presents the contributor’s expert view and it may not reflect the views of Cointelegraph.com. This content has undergone editorial review to ensure clarity and relevance, Cointelegraph remains committed to transparent reporting and upholding the highest standards of journalism. Readers are encouraged to conduct their own research before taking any actions related to the company.