Because the alternative is that we provide our passport to every online service that 'needs' to verify our identity. Then – lo, would you believe it! – they get hacked, and now all of our data is in the wild again.
I'd much rather the government, who already know everything about me because may I remind you they issued the documents, had some way of that company querying my 'verified identity'. They might do it by me providing, say, an ID number string which is looked up. That's all they get: my ID number. In return, they get confirmation that I am who I say I am.
Oh by the way I already have at least 2 of these ID numbers as an Australian citizen. My aforementioned passport, and my driver licence. Both of which I know I should keep 'private', lol, but if I want to interact with the world in any meaningful way the reality is that I spray these digits – along with my date of birth and address and whatever else they ask for – all over the goddamned place.
But sure, centralised identity is bad.