Decentralized Identity (DID): Guide to DIDs, Wallets & Verifiable Credentials

In 2023, people in the US alone lost an estimated $43 billion to identity fraud, and the total is expected to keep rising globally.

Most digital identities today are controlled by large platforms. Your login, your profile, and often your data are stored in someone else’s database. If that database is hacked, censored, or simply shut down, your “identity” goes with it.

Decentralized identity (DID) proposes a different model. Instead of accounts locked inside siloed services, people and organizations get identifiers they can control themselves, plus verifiable credentials they can reuse across many apps.

In this guide, we unpack how decentralized identity works, why it matters for your product, how wallets and platforms fit in, and what it takes to implement DID in practice.

What is Decentralized Identity?

Decentralized identity is an approach to digital identity where:

• The identifier (DID) is controlled by the user, not by a central provider.
• Credentials about the user (age, KYC, role, membership, etc.) are issued by trusted parties and can be cryptographically verified.
• Apps can verify those credentials without directly contacting the issuer every time.

Instead of “login with BigTech”, DID lets you:

• Use a wallet or identity agent to store and present your credentials.
• Use the same identity across multiple services, while sharing only the minimum required data.
• Move between platforms without starting from scratch every time.

At a high level, DIDs help answer three questions:
1. Who are you? – identifier (DID)
2. What can you prove about yourself? – verifiable credentials
3. Who vouches for those proofs? – trusted issuers and verifiers

How Decentralized Identity Works

Decentralized Identifiers (DIDs)

• Looks like: did:method:123456…
• The method defines how it’s anchored (on a blockchain, DID registry, sidechain, etc.).
• The DID resolves to a DID document describing public keys and ways to interact with that identity.

You can think of a DID as a durable “pointer” to an identity that is not tied to one app, social network, or country. If you’re choosing between different models, our decentralized identity vs self-sovereign identity breakdown compares DID and SSI side by side

Decentralized Identifier (DID) structure

DIDs are composed of three main components:

Verifiable Credentials (VCs)

A credential typically contains:

• Subject – the DID of the holder.
• Issuer – the DID of whoever issued it.
• Claims – the data being asserted (age > 18, residency, role, etc.).
• Proof – cryptographic signature.

When a user presents a VC, the verifier can:

• Check that the credential was signed by the issuer.
• Confirm that it hasn’t been revoked.
• Optionally check selective disclosure or zero-knowledge proofs (e.g., “over 18” without exact date of birth).

The DID “Trust Triangle”

A simple way to see the flow:

1. Issuer – issues a credential to a user’s DID.
2. Holder – stores credentials in a wallet or agent.
3. Verifier – requests and verifies credentials before granting access.

The verifier doesn’t need to call the issuer every time; they only need to verify the cryptographic proof. That’s what makes decentralized identity scalable and privacy-friendly.

Benefits of Decentralized Identity for Businesses and Users

Decentralized identity is not just a technical upgrade. It changes how you onboard, authenticate, and manage users.

For businesses

• Stronger security. Reduce reliance on passwords and centralized identity databases. Less sensitive data stored = lower breach impact and liability.
• Reusable KYC and compliance. Once a user holds a “KYC/AML verified” credential, they can reuse it across multiple services. You can lower KYC costs and friction while still checking compliance.
• Better customer experience. One identity, many services. Users log in with a wallet or identity agent and prove what’s needed in a few clicks.
• Interoperability across ecosystems. DID standards allow your product to plug into wallets, identity platforms, and external services instead of building everything from scratch.
• New business models. You can issue credentials yourself (loyalty, memberships, roles) and monetize connections with partners who accept those credentials.

For users

• Control and privacy. Users choose which credentials to share and with whom. They don’t need to hand over full documents or create accounts everywhere. We explore privacy-preserving techniques such as zero-knowledge proofs in more detail in our article on privacy in decentralized identity.
• Portability. Their identity is no longer locked into a single app. If they change providers, their credentials move with them.
• Reduced password fatigue. DID is a natural step toward passwordless login, backed by wallets and secure devices.

For a deeper look at real-world decentralized identity use cases, check our guide to DID use cases.

Top Decentralized Identity Platforms & Solutions (Overview)

There is no single, universal decentralized identity platform. Instead, there is a growing ecosystem of:

• DID registries and methods
• Verifiable credential frameworks
• Cloud-based identity providers
• Wallet SDKs and agent frameworks

Typical categories you’ll see:

• Enterprise-focused DID platforms – integrate with existing IAM, SSO, and compliance tools.
• Web3 / blockchain-native solutions – tied closely to specific chains, protocols, or on-chain credentials.
• Privacy-first identity platforms – focus on zero-knowledge proofs and minimal data disclosure.
• Open-source DID frameworks – give you building blocks for custom solutions.

When choosing decentralized identity platforms or solutions, teams usually compare:

• Supported DID methods and standards (W3C DIDs, VCs, OIDC bridge, etc.).
• Available SDKs and tools (web, mobile, back-end).
• Support for wallets and identity agents.
• Governance, revocation mechanics, and privacy features.
• Integration options with existing SSO or customer identity systems.

At ND Labs, we don’t push a single vendor. We help you evaluate platforms against your use case, regulation, and tech stack, then integrate the right combination of DID registries, wallet SDKs, and verification services.

Decentralized Identity Wallets: Where Identity Meets Assets

To use decentralized identity in practice, users need a place to store and present credentials. This is where decentralized identity wallets come in. If you’re new to wallets, start with our intro to what a crypto wallet is.

A decentralized identity wallet can be:

• A mobile app
• A browser extension
• A desktop app
• A smart contract wallet with an identity agent behind it

It doesn’t have to store private keys for crypto assets, but often it does. Modern wallets increasingly combine:

• Asset management – tokens, NFTs, on-chain activity.
• Identity – DIDs and verifiable credentials.
• Permissions – which apps can see or request what.

To see how identity wallets can eventually replace passwords, read our article on wallets replacing passwords.

What to look for in a decentralized identity wallet

When designing or choosing an identity wallet, pay attention to:

• Standards support DIDs, verifiable credentials, OIDC/SSO bridging, QR-based or deep-link interactions.
• Key management & recovery Can users safely recover their identity if they lose a device? Options include seed phrases, social recovery, MPC, or custodial assistance.
• Privacy and consent UX Users should clearly see what they are sharing, with whom, and why.
• Multi-device and multi-chain support Many users interact from more than one device and may use several blockchains.
• Developer integration SDKs and APIs for apps that want to request and verify credentials directly.

ND Labs builds and customizes white-label wallets that can be extended with decentralized identity, verifiable credentials, and passwordless login flows, instead of starting from zero.

Real-World Applications of Decentralized Identity (Short Overview)

Decentralized identity can be applied across many sectors. A few key examples:

• Financial services & DeFi Reusable KYC and AML credentials, compliant DeFi access, credit scoring based on verifiable data instead of raw documents.
• Enterprise access management Role- and attribute-based access for employees, contractors, and partners, with auditable but privacy-preserving credentials.
• Education & certifications Diplomas, certificates, and skills badges as verifiable credentials that can be checked by employers and platforms.
• Healthcare Patient identity, professional licenses, and consent in a way that reduces data sharing while improving trust and interoperability.
• Web3 & NFTs Membership passes, reputation or DAO roles issued as identity credentials instead of (or alongside) tokens.

On this page we keep a high-level view. For a deeper look at specific industries and scenarios, you can point readers to your separate “Top use cases for decentralized identity in 2025” article.

How to Implement Decentralized Identity in Your Product

Adopting decentralized identity doesn’t have to be a “big bang” rewrite. You can roll it out step by step.

1. Define your use cases

Start with a clear question: What do we actually need DID for?

Examples:

• Faster, less painful onboarding (KYC once, reuse many times)
• Passwordless login across multiple apps
• Role- or attribute-based access control
• Issuing credentials to customers, partners, or employees

2. Choose standards and architecture

Decide which standards and flows you’ll support:

• DID methods and registries
• Verifiable credential formats
• How you’ll handle verification and revocation
• Whether you need to integrate with existing SSO or IAM

This is where early architecture work pays off. Good design here avoids expensive refactors later.

3. Select decentralized identity platforms and tools

Based on your architecture, choose:

• DID and VC platforms
• Verification and revocation services
• Wallet SDKs or identity agents
• Bridges to your existing identity stack (OAuth/OIDC/SAML if needed)

You don’t have to commit to one vendor for everything; it’s often a combination.

4. Decide on your wallet strategy

Options include:

• Use existing wallets and integrate DID flows.
• Deploy a white-label wallet branded for your product.
• Build a custom identity wallet with specific UX, compliance, and recovery requirements.

The right answer depends on your users, regulations, and long-term product vision.

5. Integrate with your applications

Add DID-based flows into:

• Onboarding and registration
• Login & session management
• KYC/AML checks
• Role and access management
• Loyalty, membership, or partner programs

The aim is not to “replace everything at once” but to gradually migrate high-value journeys to decentralized identity.

6. Test, monitor, and refine

Measure:

• Conversion and drop-off at onboarding
• Frequency of support requests around login and access
• Credential issuance and usage patterns
• Security and compliance metrics

Use this data to refine UX, recovery, and consent flows.

Challenges and Limitations

Decentralized identity is powerful, but it’s not magic. Some challenges to consider:

• Fragmented standards and ecosystems. Multiple DID methods, credential formats, and frameworks are evolving in parallel.
• UX complexity. Concepts like keys, credentials, and wallets can be abstract for non-technical users if not designed carefully.
• Regulation and compliance. DID doesn’t remove regulatory obligations; it changes how you meet them. You still need to think about KYC/AML, data protection, and sector-specific rules.
• Interoperability with legacy systems. Many organizations already have IAM, directory services, and SSO products. DID needs to connect, not conflict, with those investments.

A realistic DID strategy acknowledges these constraints and plans around them.

Future of Decentralized Identity: What to Expect Next

The decentralized identity market is still young but growing fast. Analysts estimate it at around $1.1 billion in 2023, with projections of $100+ billion by 2030, implying annual growth rates well above 70%.

Decentralized identity is still early, but several clear trends are already visible.

1. Closer integration with passwordless and passkeys

DIDs and verifiable credentials will increasingly sit underneath passwordless login flows based on biometrics and secure devices. For users, it will feel like “sign in with your device” rather than “manage keys”, while behind the scenes, credentials and DIDs handle trust.

Organisations are already moving in this direction: surveys show about 70% of companies are planning to adopt passwordless authentication or are in the process of doing so, and the passwordless authentication market itself is forecast to grow from roughly $22 billion in 2025 to over $80 billion by 2034

2. Government and enterprise adoption

More governments and large organisations are experimenting with digital IDs, verifiable credentials, and electronic wallets for citizens, employees, and partners. As standards mature, we’ll see DID-based credentials used alongside or as an extension of existing eID and ID card schemes.

3. Identity wallets as everyday apps

Wallets are evolving from “places to store coins” to control panels for both assets and identity. Over time, users may hold payment methods, loyalty cards, memberships, diplomas, and KYC proofs in the same interface, and present them across Web2 and Web3 applications.

4. Stronger privacy by default

Techniques such as zero-knowledge proofs, selective disclosure, and privacy-preserving revocation lists will move from research prototypes into production platforms. The end goal is to prove what’s needed (“over 18”, “KYC’d customer”) without revealing everything else.

5. More interoperability and clearer regulation

Standards bodies and industry alliances are working on interoperable DID and verifiable credential profiles. At the same time, regulators are publishing guidance on how decentralized identity fits into existing data protection and financial rules. The combination should make it easier and safer for enterprises to adopt DID at scale.

For teams building products today, the takeaway is simple: decentralized identity is moving from pilots to real infrastructure. Companies that start experimenting now – even with small, focused use cases – will be better positioned as wallets, platforms, and regulations mature.

How ND Labs Can Help With Decentralized Identity

ND Labs works with companies that want to add decentralized identity capabilities to their products without reinventing the wheel.

We can help you:

• Analyze your use cases, risks, and regulatory context.
• Design a DID architecture and choose suitable platforms and standards.
• Build or customize decentralized identity wallets and identity-aware crypto wallets.
• Integrate DIDs and verifiable credentials into your apps, back-ends, and existing IAM/SSO flows.
• Launch and iterate on MVPs and production deployments.

If you’re exploring decentralized identity, wallets, or verifiable credentials and want a practical roadmap instead of theory, our team can guide you from idea to implementation.

Ready to explore decentralized identity for your product?

Let’s quickly review your use cases and see whether DIDs, wallets, and verifiable credentials make sense for your roadmap.

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