Decentralized identity (DCI) systems rely on public key infrastructure (PKI) cryptography to secure and manage identity information. When using Distributed Ledger Technology (DLT) each transaction represents a block in an ever-growing chain. All transactions in the chain are immutable so they cannot be tampered with and are distributed to all nodes in the distributed ledger. However, DCI does not require blockchain or other DLTs to function - more on that later. Now let’s break all this down a bit further. 

With PKI, a pair of cryptographic keys, one public and one private, are used to sign and encrypt data. As this implies, the public key is freely shared while the private key remains under the control of the individual. 

In the context of decentralized identity, the issuer of the verifiable credential signs the credential so it can be verified in the future, and the issuer binds the credential to the holder's public key. The credential holder can see and share the credential with others as they own the private key. When presented for verification, these bindings can be used by the verifier to confirm the source of the credential, and that the data has not been tampered with.

Distributed Ledger Technology (DLT) is the digital version of a ledger that records transactions in a secure and transparent (aka: verifiable) way. The most popular DLT is Blockchain. That’s fair given it is the underlying technology behind the popular Bitcoin cryptocurrency. However, Blockchain is just one specific type of Distributed Ledger Technology. Other common DLT’s include Ethereum and Hyperledger Indy.  

Blockchain is essentially a chain of blocks, where each block contains a set of transactions, in this case, associated with the public key. Each block is connected to the previous ones in a way that prevents future modification. Blockchains are designed to be operated by a decentralized network, meaning that no single entity controls the network, and each participant has a copy of the ledger. When each person has a copy, no one can “cook the books.”

A sidechain is a separate blockchain that is connected to the main blockchain, but operates independently. It is often used to address scalability issues that can arise when a blockchain becomes too congested with transactions. Sidechains are akin to side roads alongside a main highway (the main blockchain). Like roads, assets move between the main blockchain and sidechains, allowing more flexibility and experimentation without risking the main blockchain stability. Side chains can process transactions more quickly and efficiently than the main blockchain, and can be used for specific purposes, such as credential issuance. Companies can use side chains to create and issue their own credentials, which can be used for various purposes such as loyalty programs.

In a federated identity and access management (IAM) system, participants use discovery and credential status mechanisms to locate other participating servers, cryptographic key material and to look up status of issued credentials. In today’s IAM federations, these mechanisms are normally operated and controlled by credential issuers, which leads to concerns about surveillance and lock-in. In a decentralized IAM model, the discovery and status mechanisms may be hosted on DLT, in ways that make it impossible for credential issuers to observe or block access - which improves privacy and accessibility for individuals. In short, it comes down to who can control the sharing of information.

In short, yes and no. It depends on the implementation. 

Distributed Ledger Technology (DLT) allows for decentralizing control and building consensus on a shared digital ledger. DCI systems put all the identity data in the users control, typically their mobile device, and only rely on decentralized data stores for verification data like public key material and revocation information. This ultimately makes decentralized identity  immutable, highly available, and trustworthy. 

However, DCI systems do not have to use DLT. Issuers can provide users with a verifiable credential. This credential includes a cryptographic key that is stored with the user. Nothing gets written to a ledger. When a user presents their credential for verification, it is the cryptographic key that is verified.  

DLTs can provide all of the features required for managing identities by a DCI system including:

• Decentralization: Every node in the DLT participates in the consensus mechanism to add transactions to the ledger. It is shared across every node. 

• Highly Available: Every node in the DLT maintains a copy of the entire ledger. This ensures that every participant that requires to verify transactions can do so by reaching out to any node in the DLT.

• Immutability: DLTs use chains to string blocks of transactions into the ledger. The blockchain provides immutability by cryptographically hashing blocks of transactions in a chain. Chained blocks of transactions that are replicated and verified by all the nodes in the DLT ensure that one rogue actor cannot modify any transaction in the ledger.

• Trustworthy: Every node in the DLT verifies the blocks of finalized transactions before they add them to their own copy of the ledger. There are several consensus building algorithms used by current public implementations of DLTs including Proof of Work (PoW) employed by Bitcoin and Ethereum Classic and Proof of Stake (PoS) used by Ethereum 2 are a couple of examples of consensus mechanisms.

DLTs tick all the boxes for managing identities in a DCI system. They embody decentralization, with every node maintaining a copy of the ledger and participating in the consensus mechanism. The highly available nature of DLTs ensures round-the-clock access to verification data without relying on single authorities. Immutability is guaranteed through blockchain's cryptographic hashing, preventing any malicious modifications. And let's not forget about trust—the verification and finalization of transactions instill trust in the data written to the decentralized identity system.

Decentralized identity and distributed ledger technology (DLT) has shaken up the identity world, but let's not get carried away with the hype. While blockchain is a popular implementation of DLT, it's essential to remember that it's just one option in the grand scheme of decentralized identity solutions.

On the other hand, Side chains address the scalability issues that can plague a congested blockchain. They provide faster and more efficient transaction processing, catering to specific use cases like token issuance and smart contracts. Think of side chains as the cool, rebellious siblings of the blockchain family, bringing flexibility and enhanced functionalities to the table.

So there you have it—a glimpse into the world of DLT, blockchain, side chains, and their intricate relationship with decentralized identity. It's an evolving landscape, and it's up to us to navigate the possibilities, seize the opportunities, and revolutionize the way we manage identities.