Without digital ID, everyone who needs to verify your identity for legal reasons needs to get a lot of data about you and verify that manually. This increases costs, friction and the chances of a leak, after all, most of your data lives in dozens of private databases, some of them possibly insecure. Over here (in Poland), phone carriers need to verify your identity before selling you a SIM (for anti-terrorism reasons). The carrier me and my family have used in the past has recently had a leak, and we had to scramble to change our ID numbers and report the leak everywhere we could. Just because they had lots of data and pictures of our ID.
With a digital ID, a company can just ask the government to perform the needed checks, without ever storing any information about you. You want to do something that's only allowed for people over 18? The government can respond with a true/false response, without revealing any of your data to a company that has no business processing it in the first place.
Same for all kinds of verification. Instead of storing lots of personal data about you on company servers, store a unique, government-issued token that is tied to your identity. No one but the government knows who this token is tied to, or even what company requested it. You're effectively anonymous. Only when you commit a crime, a company passes the token to the court, which is able to retrieve the actual identity from government servers.
Those systems are far more secure than the mess we have now.