Introduction
As we think about blockchain outside of financial use-cases, identity quickly comes to mind. While self-sovereign identity isn’t a new concept, it has resurfaced this year with soulbound tokens, Web3-social and POAPs making headlines. Even the catchphrase Web5 was coined by Jack Dorsey.
But what do we really mean by a self-sovereign, or web3 identity, where can it be useful and what are the potential risks? It’s easy to get lost in the weeds, so let’s try to untangle some of these topics!
What is identity?
Identity can mean many things based on who you ask. It varies depending on the environment we’re in (work, family or friends). Today, there’s also a distinction between our physical and digital identities. Digital identities can be partly based on our real-world identities, or completely detached. Crypto Twitter is no stranger to anons, who despite their anonymity have still been able to amass a following and reputation.
As a rough summary, identity is an expression of who we are, or claim to be. More importantly, identity gives us a reputation. This helps predict future behaviour and introduces a layer of trust to interactions.
How can Web3 improve our digital identities?
As our lives have increasingly moved online over the past decades, our identities have followed. Web2 allowed for easy content creation and sharing, but it has two main downsides:
Non-portability means our identity doesn’t follow us when we move from one application to another. Users need to manage multiple accounts, and in effect multiple identities. This leads to higher switching costs, which is a moat for the application but friction for the users.
Lack of ownership means our identity is controlled by the company behind the platform, rather than the user itself. This introduces some level of censorship-risk, as the account can be erased or banned without explanation. Additionally, it’s often unclear what our data is used for.
Web3-identity, on the other hand, is based on interoperability, composability and control. Interoperability helps us create a more complete image of our identities, while composability enables applications to build on top of each other. This unlocks new ways of leveraging our identities. Finally, by putting at least some control back in the hands of users, we gain more transparency and choice of how our data is used.
Potential use-cases and how to bring more life to our Web3 identities
Today we already use our wallets to prove identity and log-in to applications. However, wallets primarily display our financial identity (tokens and NFTs we own) and transaction history. Future applications centre around social coordination and trust, but we need additional ways to represent and display our identity.
As the range of possible on-chain activities broaden, so too should our identity. More importantly, we need to allow off-chain information to flow on-chain. It includes things such as real-world credentials (university degrees etc), proof that we attended an event or concert as well as part of our existing digital identity.
The off-chain bridge is important since we still live in the real-world (meat-space). More importantly, it would otherwise risk giving early adopters of crypto/web3 an unfair advantage (the rest start from scratch).
This is not only a distant dream, but already happening to some degree. Universities are experimenting with issuing credentials on-chain and number of POAP wallets have been steadily increasing. Web3 social is still a nascent space, but is slowly gaining traction driven by protocols such as Lens.
Risks and potential problems?
The main risk is losing access to your wallet, and effectively your identity. Before web3-identity can gain any serious ground, wallet UX and key-recoverability needs to improve. Potential solutions include biometric recovery (Face-ID, fingerprint), multisig and social recovery wallets.
Despite the transparent nature of public blockchains, there’s many aspects of our identity that we don’t want everyone to know. Privacy could be enhanced with ZK-technology or hybrid-solutions based on DIDs and VC (protocols such as Disco XYZ, Dock and LTO Network). Another concern is around discrimination and negative screening, if characteristics like gender, religion and ethnic background are openly disclosed.
Negative reputation is another tricky nut to crack, especially in the context of non-transferable and public tokens (such as SBT). It can be useful in some cases, for example proving that you don’t have any other loans outstanding. However, it doesn’t take a lot of imagination to see how negative reputation could be used for a personal attack through airdropping something harmful into another person’s wallet.
Conclusion:
Crypto often moves at a rapid pace breaking barriers along the way. While experimentation is important, identity requires a bit more careful consideration given the potential negative impact if used in the wrong way. Identity is also quite an abstract and philosophical concept, which further complicates the debate around various approaches.
As of now, it seems that the surrounding infrastructure is not there yet, but the use-cases around Defi and improved governance remain exciting. It’s worth keeping an eye out for protocols building in the space.