The Decentralisation Paradox in Digital Identity: Centralising Decentralisation with Digital Wallets?

2026-03-17

AI Summary

This study addresses the “decentralization paradox” inherent in user-centric digital identity architectures, which, despite their claims of decentralization, often embed new forms of centralization. Drawing on Critical Systems Thinking (CST), the paper frames digital identity as a “wicked problem” spanning technological, legal, social, and ethical dimensions. It critically examines how solutions such as digital wallets redistribute—rather than eliminate—centralized power. The work introduces the concept of the “decentralization paradox” to demonstrate that technological mechanisms alone are insufficient for genuine user empowerment. Instead, it argues for an integrative approach that incorporates institutional and socio-political considerations. By advocating a multidimensional systems perspective, the study calls for the design of more inclusive, equitable, and resilient digital identity frameworks.

Technology Category

• Game Theory and Economic Paradigms: Mechanism Design
• Multiagent Systems: Mechanism Design
• Data Mining & Knowledge Management: Scalability, Parallel & Distributed Systems

Application Category

• Systems and Infrastructure for Web, Mobile and WoT: Decentralized Web and Fediverse systems
• User Modeling, Personalization and Recommendation: User privacy protection in personalized systems
• Responsible Web: Data and user privacy-enhancing technologies for the Web

Abstract

Digital identity is shifting from service- and network-centric approaches toward user-centric ones that promise users increased control over their data. Despite their decentralised design, such approaches often reintroduce centralised components in different forms. This research explores this tension, i.e., the decentralisation paradox, and argues that user-centric architectures tend to redistribute rather than eliminate centralisation. Based on Critical Systems Thinking (CST), digital identity is framed as a "wicked problem" that spans across the technical, legal, social and ethical dimensions. The paper argues that understanding all these interdependencies is essential for designing reliable architectures and ensuring the next generation of digital identity goes beyond superficial decentralisation.

Problem

• decentralisation paradox
• digital identity
• user-centric design
• centralisation
• wicked problem

Innovation

• Decentralisation Paradox
• User-Centric Identity
• Critical Systems Thinking
• Wicked Problem
• Digital Wallets