Digital credentials explained: How they complement passkeys in modern authentication

With passkeys gaining widespread adoption for secure authentication, a new player is emerging in the digital identity space: digital credentials. While passkeys have changed how we log into applications, digital credentials solve a different but equally important problem. They let you prove things like your age, qualifications, or identity using cryptographically verified documents from trusted sources like governments or universities.

Here's a simple example that makes the difference clearer, a passkey lets you log into an online liquor store, but a digital credential proves you're over 21 so you can actually complete the purchase.

If you've implemented passkeys and are wondering what comes next in the identity evolution, or if you're hearing about digital wallets and verifiable credentials and trying to understand how they fit with your existing authentication strategy, this guide is for you.

Let's see what digital credentials are, how they differ from passkeys, and why they're designed to work together rather than replace each other.

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What are digital credentials?

Digital credentials are cryptographically signed statements from trusted authorities that prove verified facts about you. They're like your driver's license, university degree, or professional certification, but in digital form with built-in verification.

Unlike physical documents that can be forged or altered, digital credentials (aka verifiable credentials) use cryptography to ensure they're authentic and tamper-proof. They live in a digital wallet on your phone, and you control what you share and when.

For example:

• A government might issue you a digital driver's license (mobile driver's license or mDL)
• An employer might issue you a professional certification
• A financial institution might verify your identity for KYC compliance
  
  

Digital credentials offer you selective disclosure. Need to prove you’re over 21? Share just that fact, not your full date of birth, address, or any other personal information.This privacy-preserving approach makes them ideal for scenarios where you need to prove attributes about yourself without oversharing.

Digital credentials are built for attestation. They answer the question: "What verified facts about you can you prove?"

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Standards and formats

Digital credentials typically follow one of two main standards:

• W3C Verifiable Credentials (VC): A flexible, web-focused standard that can represent any type of credential from government IDs to professional certifications
• ISO mdocs (ISO/IEC 18013-5): Originally designed for mobile driver's licenses, now expanding to other high-assurance government credentials

Both use similar cryptographic principles but have different technical structures based on their origins. W3C VCs were built for online, web-based interactions, while ISO mdocs were initially designed for in-person verification scenarios (though they now support online use as well).

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What are passkeys?

To understand where digital credentials fit, it helps to know what passkeys do well. Passkeys are your secure key to accessing accounts and services. They use public key cryptography to replace passwords. When you create a passkey, your device generates a private key (stored securely) and a public key (shared with the service). When you sign in, your device proves you have the private key without ever exposing it.

The result: no passwords to remember, no phishing attacks, and a smooth login experience using Face ID, fingerprint, or your device PIN.

Passkeys are built for authentication. They answer: "Are you the legitimate user trying to access this account?"

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What digital credentials do differently

While both use cryptographic security, digital credentials and passkeys serve different purposes:

The key insight is that digital credentials carry verified information from trusted authorities, while passkeys are simply cryptographic keys you control. You can't fake a government-issued digital ID the way you can't fake a physical passport, but you generate your own passkeys. Passkeys get you through the door, while digital credentials prove you're qualified to be there.

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How they complement each other

Here's where things get really powerful. These two technologies aren't just compatible; they're designed to work together in a complete identity ecosystem.

The ideal flow

Imagine you're signing up for a financial service that needs to verify your identity. Here's how passkeys and digital credentials would work together:

1. Initial identity verification (Digital credential): You present a government-issued digital credential (like a mobile driver's license) to prove your identity and meet KYC requirements.
2. Create your account (Passkey): Once verified, you create a passkey for that service. This becomes your primary authentication method.
3. Daily access (Passkey): Every time you log in after that, you use your passkey. Fast, secure, no friction.
4. High-risk transactions (Digital credential): When you want to do something sensitive (like transferring a large sum or changing account details), the service might ask you to present your digital credential again for additional verification.
5. Account Recovery: If you lose your device, you can use your digital credential to prove your identity and set up a new passkey.

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The technical ecosystem

Both technologies leverage similar underlying infrastructure:

• Cryptographic security: Both use public key cryptography and hardware-backed security
• Privacy preservation: Both minimize data exposure and give users control
• Platform integration: Both benefit from OS-level support and secure hardware

The difference is in how they're used:

• Passkeys follow FIDO2/WebAuthn standards and are primarily handled by platform authenticators
• Digital credentials follow W3C VC or ISO mdoc standards and are managed in digital wallets

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What this means for developers

If you're building authentication systems, here's what you should know:

1. Use passkeys as your primary authentication method. They provide excellent security and user experience for everyday access.
2. Consider digital credentials for high-assurance scenarios. If you need to verify identity attributes, professional qualifications, or comply with KYC/AML regulations, digital credentials are your friend.
3. Don't treat them as either/or. The most robust systems will use both: passkeys for authentication and digital credentials for attribute verification.
4. Keep an eye on evolving standards. The EU's EUDI Wallet initiative and similar efforts worldwide will make digital credentials more mainstream. Services operating in these regions may soon be required to accept wallet-based authentication and attribute sharing.

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A unified identity ecosystem

We're moving toward a world where your digital identity is:

• Decentralized: You control your credentials in your own wallet
• Privacy-preserving: You share only what's necessary through selective disclosure
• Phishing-resistant: Cryptographic proofs replace easily stolen passwords
• Interoperable: Standards-based credentials work across borders and platforms

Passkeys handle the "who you are" part of this equation with fast, secure authentication. Digital credentials handle the "what about you" part with verified, cryptographically secure attestations.

Together, they create a complete identity solution that's more secure, more private, and more convenient than anything we've had before.

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Getting started

At Authsignal, we're committed to helping you navigate this evolving landscape. Passkeys are already available and ready to implement today. Digital credentials are rapidly maturing, especially in regions with strong government backing.

You don't have to choose between them. Start with passkeys for authentication, and prepare for digital credentials as they become more prevalent in your market or use cases.

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