Decentralized identity promised to disrupt digital identity, but the private sector didn’t buy in. While businesses saw little value, governments recognized its potential for interoperability and secure services. From age verification to AI agents, this blog explores where decentralized identity fell short – and where it may still reshape the future.

Why Decentralized Identity Didn’t Work in the Private Sector

About a year ago, many people in the identity space talked about decentralized or self-sovereign identities as the next big thing - the evolution that would revolutionize identity and access management (IAM). 

But this revolution never happened.

To understand this, we must distinguish between the civil and commercial worlds.

Decentralized identities never took off in the commercial world because, frankly, while technology is good for people, it offers no real benefit for businesses.

There is an intrinsic conflict between, for example, a retailer's revenue model and the privacy benefits that consumers gain from decentralized identities. Put simply, if consumers can control their data, businesses can no longer consume that data for commercial reasons, like marketing. Ultimately, there is no compelling business case for decentralized identity.

However, the public sector is a different story.

Decentralized Identity in the Public Sector

The public sector, particularly in Europe, has taken a much more favorable view of decentralized identity. However, public sector adoption of decentralized identity isn’t driven by a will to protect personally identifiable information (PII); it’s about interoperability. 

Initiatives like the European Digital Identity (EUDI) framework aim to enable seamless cross-border services, making it possible, for example, for a Greek citizen to open a bank account or apply for insurance in Spain without bureaucratic friction. 

This vision is less about privacy and more about the EU’s strategic ambition to build a cohesive digital market. Decentralized identity enables this by providing a standardized, interoperable foundation.

However, adoption still isn’t guaranteed. Governments face two major hurdles: digital literacy and trust. Many citizens don’t yet know how to use digital wallets, and in some countries, there’s a deep-rooted – and perhaps not unfounded – skepticism of governments handling identity.

Again, it’s about creating and communicating a positive business case. If using a digital identity, an individual can get a loan for a car or a house cheaper in Belgium than in Spain, having a digital identity has a clear financial incentive, and as such, people will be more likely to accept and adopt it.

How Age Verification is Driving Decentralized Identity Adoption

Age verification is one of the most immediate and practical applications of decentralized identity today. 

Across the world, governments are under increasing pressure to regulate how minors access digital services. From social media platforms to adult content and online gaming, age-restricted content is a growing concern. Decentralized identity offers a privacy-preserving solution, allowing users to prove they are above a certain age – without revealing who they are. 

This is where verifiable credentials come in. Instead of uploading a copy of a passport or driver’s license to a website, users can present cryptographic proof that they meet an age requirement – nothing more, nothing less. 

Governments in countries like France, Italy, Greece, Australia, and Singapore are already exploring how decentralized identities can tackle these kinds of issues. This is a particularly fascinating area of digital identity because it has the potential to drive revenue and do tangible social good. 

The broader impact of this is that standardizing age verification could be a gateway to wider decentralized identity adoption, both by governments and, eventually, businesses looking to meet regulatory requirements without compromising user trust.

An Unexpected Use Case: Identity for AI Agents

While decentralized identity has largely failed to disrupt traditional IAM for human users in the way so many of us expected, it may yet find its key use case – not for people, but for machines.

We’re fast approaching a world where AI agents will carry out tasks on our behalf. To do so safely and responsibly, these agents will need to identify themselves, authenticate actions, and exchange credentials just as humans do. The cryptographic foundations and verifiable credentials of decentralized identities are perfectly suited for this. 

This could well become the new frontier: decentralized identity not for people but for technology. For example, initiatives like Gaia-X’s data transfer agents are already exploring how verifiable credentials can authenticate software components and ensure trusted machine-to-machine interactions. 

So, What Now?

We began with a simple truth: decentralized identity was supposed to disrupt IAM but didn’t. However, the journey isn’t over. Governments are still investing, driven by political goals like interoperability and digital sovereignty. Meanwhile, commercial interests may reignite – not in user-facing services but in enabling AI systems and digital ecosystems to function securely and autonomously.

Decentralized customer identity may have failed to reshape the business-consumer relationship, but it is laying the groundwork for a new era of trusted digital interactions – whether human or machine.