I am a bit opinionated about that, because I already saw lots of that in Russia with all these fancy "security" and "convenient" digital tools and how it ended.
Digital Id should be solved by some kind of WebOfTrust, private DIDs and somehow distributed reputation systems, not by centralized government databases. It's a straight way to tyranny.
The reason why it needs to be managed by the government is because legal contracts are ultimately enforced by government courts. Many things that, today, rely upon pen-and-paper signature (and Docusign-style electronic variants, which are just digital facades to the pen-and-paper reality), to get them enforced, require submitting more mountains of paperwork and physical appearances etc. We can't get out from behind that paper legacy, really start to explore contracts that can be disputed and enforced with simple online forms and no in-person appearances (everything from employment, to real estate / housing, to credit...) until the courts have a trustworthy to say, for this digital identity that signed that agreement, we know that it really was such-and-such a real person.
> It's a straight way to tyranny.
You'll disagree, but I would argue that it isn't more powerful tools that make government tyrannical, but a lack of education, poor culture, and a lack of checks-and-balances on government power. The government is supposed to have a monopoly on various parts of life, first and foremost a monopoly on violence (police, courts, and justice). "Democratic" but weak governments (consider e.g. Mexico, in the context of the drug wars) are ineffective at securing the blessings of life, liberty, and the pursuit of happiness; America has a history of strong governmental institutions that protect these rights. "Technology is neither good, nor evil, nor neutral, it simply is," and indeed, improving governmental strength by pushing past technical barriers is simply an orthogonal concern (IMO) to whether or not governments are just or tyrranical.