The single biggest challenge for digital identity systems has been to create counterparts to the secure physical identifiers we use today.

For instance, there has yet been no effective online equivalent to producing your driver's license at the drug store. And while there are traditional identifiers most people are familiar with online (like the Facebook login), these systems raise key questions about the centralized registries trusted by consumers and the control they have on the systems that secure them.

Now, Project Indy, a blockchain initiative developed by the Sovrin Foundation, is trying to fix this problem using a hybrid distributed ledger platform. As described, the ledger would be public, but in order to interact with it, an invite would be required.

According to Phil Windley, chair of the Sovrin Foundation, the idea is to "strike a middle ground" between permissionless ledgers like bitcoin and permissioned options like R3's Corda.

"One of the key philosophies of Project Indy is that private information is never written to the ledger, even in encrypted form," said Windley. "It gets anchored on the ledger so there's proof that it existed on a certain day."

Elements of identity are then updated on the distributed ledger to be verified by an agent. In the example of a digital driver's license, an agent could be the Department of Motor Vehicles (in the US). However, the idea is that the system is used by third-party operators, but not owned or controlled by them.

Project Indy subscribes to the concept of 'verifiable claims' – a method of cryptographically authenticated online identification, where no private data is written to ledger, returning some ownership to the user.

Windley explained:

It's worth noting that the World Wide Web Consortium has set up a verifiable claims working group to encourage interoperability among different players building decentralized ID solutions.

But why is centralized identity a problem? And what does blockchain do to provide a solution?

Online identity has been a "disastrous situation" for some time according to Brian Behlendorf, executive director of Hyperledger, the blockchain group overseen by the Linux Foundation.

Project Indy recently joined Hyperledger, and now hopes to get the ball rolling on this new form of identity with some practical use cases. A prominent use case would be in the financial services sector, replacing fractured systems that are prone to privacy breaches and leave the user with little or no control over their identity data.

The mission statement of Project Indy is restoring control to people's online identity by moving away from centralized services.

Windley told CoinDesk:

In partnering with Hyperledger, the Sovrin Foundation is contributing Project Indy's code to the non-profit consortium – a move Windley believes will hasten development of the project's proofs of concept (PoCs).

"We have running code that can serve as the basis for prototyping, experimenting, hacking, certainly for finding holes, both security holes or conceptual holes," said Hyperledger's Behlendorf.

Like many distributed ledger technology efforts, the financial services sector is showing the most interest in Project Indy so far. And, according to Windley, there are six financial services PoCs already underway.

"Probably the first one that's going to be launched is one that identifies people in call centers, which isn't the sexiest application you can imagine, but it’s a real problem that financial institutions have," he said.

Another banking use case is compliance with know-your-customer (KYC) regulations. Identity ledgers would reduce the regulatory costs felt by financial institutions in this regard, claimed Windley.

Healthcare is also a potential beneficiary of the tech. The project envisages a system where doctors who move between different hospitals could hold their own identifiers to verify their credentials.

Still, Behlendorf is more open-minded about where the project might lead, saying:

Egg in flour image via Shutterstock