Most people think that their identity consists of a passport, driving license, and birth certificate. Ten years ago they would have been correct. Today, they’re wrong. Digital identities are becoming more sophisticated as technologies improve.

Yet, there are more technological developments than ever. Why should you care about digital identities?

Well, if you want to keep your identity safe from hackers, see people in developing nations open a bank account for the first time, and take control over your personal data—digital identity matters.

What are three of the most important problems that digital identity can solve?

1. Consider how your bank verifies your identity. Typically, they require only legal documents to transact with you. You can send and receive money, take out loans, and establish credit. You would hope your identity would be safe. But recently, we have seen more and more data hacks where individuals’ identities are exposed. For example, when Equifax Bank was hacked, 143 million individuals Social Security numbers, birth dates, addresses, and even some driver’s license information were stolen.

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2. Identity theft isn’t the only problem of legal identities. In developed nations, we take for granted how easy it is to receive a driver’s license or passport. But many developing countries don’t have easy access to a formal identity like a passport. In fact, in developing countries, there are 1.2 billion people who do not have a formal identity. That means they can’t open a bank account, own land, or receive welfare.

3. Data has become more valuable than ever, so much so that sophisticated investors are calling data a new asset class. For the decade, we’ve been freely giving our data over to tech companies and banks for free. It was convenient for us, so we gave them permission—and helped them get wealthier. We give away our data and let companies use it as they please.

Before we see how digital identity solves these problems, we need to understand what a digital identity actually is.

Most people think of their identity as their driver’s license, passport, and birth certificate. But they’re just one type of identity—your legal identity. We have three other types of identity, which are becoming more prominent. They’re going to change how we interact with the world.

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Here are the four types of identity we can now use:

Legal Identity: Your passport, driver’s license, and birth certificate. These are typically created and authenticated by a central authority such as a government. Physical Identity: Your fingerprints, your iris, and your DNA. Technology can quickly and easily identify you by these measures. Electronic Identity: Your social media profiles such as your Twitter, LinkedIn, and Facebook. These are created individually, but your information is stored by a private company. Behavioral identity: How you behave, such as the way you talk, the way you walk, and the way you message. As machines get smarter, they can increasingly detect who we are by subtle actions.

We can see the concept of identity is expanding. No longer will our identity be limited to government-issued documents. We will be increasingly identified by our unique physical features, our online presence, and our unique behavior.

Digital identity can encompass all four types of identity. It will be much more robust than our current legal identities. Clearly, digital identities will have many valuable applications, including the three problems we identified above.

So how do we solve the three problems?

1. Currently, those Equifax customers who had their data hacked are at risk of identity theft. But they would be far more secure using a digital identity that also used physical, electronic, and behavioral identity. As hackers become more sophisticated, our identities can too.

2. What can be done to give individuals in developing nations a formal identity? In India, they launched Aadhaar. It provides you with a 12-digit number that represents your biometric and geographical data. In a country where previously many people had no formal identity, not 99% of the adult population has an identity they can use to withdraw cash at the ATM, make large transactions, and even be verified for online education.

3. We’ve already seen that in Europe, where GDPR legislation that users are notified of a data breach and allows them to share their data. Digital identities can give individuals more control over their data. If we control our identity, we can control our data. We can move away from a model of convenience to compensation. Data is valuable, digital identities will help individuals capture part of that value.

What does the future of digital identity look like?

Digital identities will be our future. But it’s not clear how that future will play out. Will our digital identities be controlled by a central authority such as a government? Or will it be decentralized and in individuals’ control by using technology like Blockchain?

Either way, start-ups are going to be at the center of this change. They will either create technology that allows governments to control digital identities or blockchain technology that gives individuals control.