What is centralized identity
Centralized identity is a system where a single organization (like a company, school or service provider) stores and manages all the identity information of its users. This includes details such as usernames, email addresses, government ID numbers, and other personal identifiers. Most online services today rely on this model to verify who a user is.
Imagine a company that keeps all employee and customer identity records in one database. From the company’s point of view, everything is neatly organized and managed in one central place. For users, however, the reality is very different. Since each organization manages its own identity system, people end up with multiple logins: separate accounts, passwords and credentials for every service they interact with. It is common for someone to juggle dozens, even hundreds, of different accounts across various platforms.
This overload leads to habits like reusing passwords or choosing weak ones. This results in increased chances of identity theft, data breaches and other security risks. What feels centralized and convenient for organizations actually becomes complicated and unsafe for end users.
Decentralized Identity/Self-Sovereign Models
Decentralized identity (also known as self-sovereign models) is a model in which people manage their own personal data and credentials through a digital wallet that they fully control. This wallet serves as a secure middle layer, protecting both the user’s information and their privacy. Instead of relying on names or email addresses, a decentralized identifier (DID) can simply be a randomly generated string that contains no personal details. This adds another layer of privacy.
With decentralized identity, individuals decide exactly what information they want to share with any organization that needs to confirm who they are. They control when, where and how their data is used. DIDs work well because the credentials stored in a user’s wallet are verified by trusted third parties. For example, a person could store a cryptographically signed driver’s license in their digital wallet. When renting a car, they would give the rental company permission to check that credential. Or, if a website selling alcohol needs proof of age, the user could allow their wallet to confirm they are over 21, without revealing anything else. The same approach can be used for addresses, university degrees, job history, government IDs, bank details and other sensitive information.
Most decentralized identity systems are built on blockchain technology. The blockchain records transactions involving DIDs, but never stores personal data itself. Since authenticated credentials rely on cryptographic keys instead of passwords, users no longer need to manage dozens of login details or worry about password-related attacks.
Benefits of Centralized Identity Management
- Stronger Security:
Managing access from a single system makes it easier to protect company data. Centralized control reduces the chances of overlooked accounts or weak passwords slipping through. Security teams can quickly detect unusual behavior and respond before it turns into a serious issue.
- Better User Experience:
Employees no longer need to juggle multiple usernames and passwords. With single sign-on (SSO), one login grants access to all the tools they need. This makes daily tasks faster and less frustrating. This not only cuts down on login hassles but also helps people work more efficiently.
- Easier Administration:
IT teams can manage all accounts and permissions from one place. Adding new employees, adjusting roles or removing access during offboarding becomes a quick and consistent process. Having everything centralized reduces mistakes and simplifies overall management.
- Improved Compliance:
Centralized identity systems make it easier to meet regulatory and audit requirements. They keep detailed logs of who accessed which systems and when. This helps organizations maintain transparency and demonstrate adherence to security policies.
- Lower IT Costs:
Automation and centralized controls reduce the amount of manual work required. With fewer password resets and access-related problems, help desk teams receive fewer tickets. This frees up IT staff to focus on higher-value tasks and helps lower support costs overall.
- Uniform Security Policies:
Security rules (like password strength or access restrictions) can be applied consistently across the entire organization. This reduces gaps in protection and ensures everyone is following the same standards.
- Greater Visibility and Insights:
Administrators get a clear picture of user activity and access across all platforms. This visibility helps identify potential risks and manage licenses more effectively. It also becomes easier to spot inactive accounts and remove them to tighten security.
Benefits of Decentralized Identity
- Greater privacy and control:
Users decide exactly what personal information they want to share and with whom. Since DIDs only require limited personal data for verification, the amount of exposed information is far smaller if a breach occurs.
- Fewer accounts to manage:
With a digital wallet and a DID, people do not need to create a new account for every service they use. One identity can work across multiple platforms.
- Trusted, verifiable credentials:
The information stored in a digital wallet is already validated and signed by reliable third parties. This can speed up identity checks because the credentials do not need to be reverified each time.
- Less responsibility on organizations:
Companies only receive the specific, accurate data that a user authorizes. Since they are not storing or managing DIDs themselves, they take on far less risk and responsibility when it comes to protecting personal information.
- Lower appeal for attackers:
Organizations that use decentralized identity store far less user data. This makes them less appealing targets for cybercriminals looking for large data troves.
- No more password headaches:
DIDs rely on cryptographic keys rather than passwords. This eliminates common issues like forgotten passwords, weak passwords or credential-based attacks.
- Advantages of blockchain:
Because most decentralized identity systems run on blockchain, they benefit from features like transparency, immutability and tamper-resistant records.
Choosing between centralized and decentralized identity management goes beyond the technical side. It is a decision that shapes how your organization operates. If your priority is tight control over identities, quick user onboarding and consistent policy enforcement, a centralized setup is usually the better fit. On the other hand, if privacy, user-controlled data and freedom from vendor lock-in matter more, a decentralized model offers the flexibility you need.
In reality, many companies benefit most from a mix of both. Strong centralized oversight paired with decentralized options for teams, partners and external users.
References:
https://www.strongdm.com/blog/centralized-decentralized-identity-management
https://nhimg.org/centralized-vs-decentralized-identity-management-for-microservices
