What is the main difference between decentralized and federated identity?

In federated identity a central identity provider authenticates you and vouches for you to each service at login time. In decentralized identity you hold signed credentials yourself and present them directly, so a verifier can check them without contacting the issuer.

Is decentralized identity replacing SAML and OIDC?

No. Federated protocols remain the right tool for workforce single sign-on and are deeply entrenched. Decentralized identity adds portability and reusable, privacy-preserving credentials. Most organizations will run both, and the OpenID4VC protocols are built on the same OAuth 2.0 foundation as OIDC.

Which is more private, decentralized or federated identity?

Decentralized identity is generally more private because the holder controls disclosure and the issuer is not contacted at each verification, so there is no central provider tracking every login. Selective disclosure lets the holder reveal only what is needed. The caveat is revocation checking, which must be designed so it does not reveal each use; the W3C Bitstring Status List does this by hiding each credential in a large list.

When should I use decentralized identity over federated?

Use decentralized identity for reusable identity verification, portable credentials that should survive provider changes, privacy-sensitive proofs such as age, and government or cross-border scenarios. Use federated identity for enterprise SSO and app-to-app authentication.

How does revocation differ between the two models?

In federation you revoke by disabling the account or ending the session at the identity provider, and the next login fails. In decentralized identity the credential is already in the holder's wallet, so the issuer publishes its status, typically in a status list, and verifiers check it. That makes revocation an explicit design task rather than a side effect of the login.

Can my existing identity provider issue verifiable credentials?

Some can. Microsoft Entra Verified ID, for example, issues credentials using did:web, and several CIAM and decentralized identity vendors sit next to an existing IdP. A common pattern is to keep the IdP as the source of truth and issue credentials from it, rather than replacing it.

Decentralized Identity vs Federated Identity

Federated identity and decentralized identity both answer "how does a service know who you are," but they do it in opposite ways. Federation asks a live identity provider at every login; decentralized identity checks a credential the user already holds, without calling the issuer. That one difference drives the differences in privacy, availability, revocation, and fit. Most organizations will run both. For the primers, see what is decentralized identity and SAML vs OIDC.

The two models

Federated identity puts a central identity provider in the middle. At login, the IdP authenticates you and sends the service (the relying party) an assertion vouching for you, using SAML or OpenID Connect. The service trusts the IdP in real time, through a pre-arranged trust relationship: exchanged SAML metadata or a registered OIDC client. See federation.

Decentralized identity removes the runtime middleman. An issuer signs a verifiable credential and gives it to you. You hold it in a wallet and present it to a verifier as a verifiable presentation. The verifier resolves the issuer's DID to get its public key, checks the signature and status, and decides whether it trusts that issuer, all without calling the issuer. See decentralized identity explained.

In Christopher Allen's 2016 framing of identity's evolution, The Path to Self-Sovereign Identity, federation is the second of four stages; self-sovereign identity is the fourth. See what is self-sovereign identity.

Side by side

Dimension	Federated (SAML, OIDC)	Decentralized (DIDs, VCs)
Trust check	Live assertion from the IdP	Issuer signature plus trust policy
Issuer online at use time	Yes, at every login	No, only for issuance and status lists
Who sees each use	The IdP sees every sign-in	Only the verifier
Data shared	Whatever claims the IdP releases	Holder chooses; selective disclosure possible
Revocation	Disable account or end session	Publish credential status; verifier checks
Portability	Tied to the IdP's namespace	Credential moves with the holder
Key management burden	On the IdP operator	Partly on the holder's wallet
Trust setup	Bilateral metadata or client registration	Trust registry or ecosystem governance
Maturity	Decades of deployment, universal SaaS support	Core standards final in 2022 to 2025, wallets rolling out

What the mechanics look like

A federated login (OIDC): the app redirects you to the IdP; you authenticate; the IdP redirects back with an authorization code; the app exchanges it for an ID token and validates it. The IdP is involved every time, which is why it can enforce MFA, device checks, and conditional access centrally, and also why it learns about every sign-in.

A credential presentation (OpenID4VP): the verifier sends a request describing the claims it needs; your wallet asks for consent; the wallet returns a presentation, often an SD-JWT VC or ISO mdoc with only the requested claims disclosed; the verifier checks the issuer signature, holder binding, and status. OpenID for Verifiable Presentations 1.0 became final on 9 July 2025 and includes a query language (DCQL) and support for the browser Digital Credentials API.

Where each wins

Federated identity wins for workforce single sign-on, app-to-app authentication, and anywhere a mature, universally supported protocol and central control are what you want. When an employee leaves, you disable one account and access stops everywhere, which is exactly what security teams need. It is not going away. See the SSO implementation guide.

Decentralized identity wins for reusable identity verification and KYC, portable credentials such as certifications and diplomas that should outlast any provider, privacy-sensitive proofs (age, eligibility, residency), and government or cross-border identity such as the EUDI Wallet and mDL. The European Commission says member states must provide EU Digital Identity Wallets by the end of 2026, which is turning the model into public infrastructure across the EU.

Decision guide

Use case	Choose	Why
Employees signing in to SaaS apps	Federated	Central policy and instant deprovisioning
Customers logging in to your app	Federated (OIDC), passkeys	Session-based, you own the account
Verifying a new customer's identity once, reusing it later	Decentralized	Avoids repeat KYC, holder carries proof
Proving age or eligibility without full identity	Decentralized	Selective disclosure, issuer not told
Onboarding contractors from partner companies	Either; credential is gaining	Partner issues an employment credential instead of a guest account
Machine-to-machine API access	Neither; use OAuth client credentials or workload identity	Different problem

Failure modes to plan for

Federated: the IdP is a single point of failure for login and a high-value target. An IdP outage locks everyone out; a compromised signing key lets attackers forge assertions. See federation trust abuse and SAML forgery and the IAM disaster recovery guide.
Decentralized: responsibility shifts to the holder's device. Lost phones, wallet recovery, and issuer key compromise (every credential signed with that key becomes suspect) are the hard problems. Revocation must be designed explicitly, typically with the W3C Bitstring Status List, a Recommendation since 15 May 2025, which requires at least 131,072 entries so a status check does not single out one credential.

The future is hybrid

These models are not a contest with one winner. The realistic architecture for most organizations is both: keep federated SSO for sign-in, add verifiable credentials for reusable and portable proofs, and bridge them with an identity fabric. The standards make this practical because they share a foundation. OpenID for Verifiable Credential Issuance 1.0, final on 16 September 2025, is built on OAuth 2.0 and offers an authorization code flow, where the user signs in to the issuer, typically through the existing IdP, before a credential is issued. See OpenID4VC, OpenID4VCI, and OpenID4VP.

A common first project is to issue a verified employee credential from the IdP you already run, for example with Microsoft Entra Verified ID, which uses did:web, and use it for help desk identity checks or partner access. That gives you decentralized identity experience without touching workforce SSO.

Where to go next

Overview: decentralized identity explained. Identifiers: DID methods compared. Build: verifiable credentials implementation guide. Choose: choosing a decentralized identity platform and the best verifiable credential platforms. Standards: Verifiable Credentials, DID.