TL; DR

• Certificate fraud, fake verification information, slow verification processes, and data breaches are just a few of the issues associated with the current centralized digital identity systems that decentralized identity technology can solve.

• DID enables issuing organizations to create fraud-resistant verification information and empowers verifying organizations to immediately check the authenticity of that information. Individuals fully own and control their identity and digital verification information without relying on any third parties.

• The potential of DID is immense, and it stands to gain tremendous value, second only to blockchain technology itself.

• Compared to projects like DeFi and GameFi, DID offers a low barrier to entry in terms of cost and doesn't require deep knowledge, while also benefiting from the Matthew effect, expected to become an ultra-low-cost gateway for users to join web3.

• DID can provide personalized content similar to web2. At the same time, it ensures that we have an identity and can choose our account information without leaks or exploitation by others or other centralized organizations.

• The identity layer on blockchain brings new breakthroughs: redefining identity ownership, changing the power of identity, and returning data ownership to users. We divide DID into:

  • The private key management layer

  • The authentication layer

  • The authorization layer

  • The proof layer: The proof layer has the advantage of unique data and is the most potential product type to create a complete DID.

The competition for wallets in the future will be extremely fierce, not only the existing EOA (Externally Owned Account) and AA (Account Abstraction) wallets but also cross-track contenders at the Proof level may join the race to provide users with better account identity systems and DIDs.

*This is a heavily researched article; if you're truly patient, read it through for the most comprehensive view of the topic. I put a lot of effort into writing this article, but it's an easy read!

*The Matthew effect is an economic phenomenon named after the English philosopher Matthew Whittaker. It emerged in the financial markets during the 1980s, where investors from developed countries not only receive profits from these countries but can also achieve higher efficiency by investing in them.

*W3C stands for the World Wide Web Consortium, which guides the World Wide Web (www) with all its development potential of protocols.

I. WHAT IS DECENTRALIZED IDENTITY (DID)?

DID stands for Decentralized Identifiers, emphasizing decentralization first and then identity. This concept is pivotal within the web3 space, where maintaining identity consistency in a decentralized environment and the utilization of our identities are critical discussions.

A. IDENTITY

In the centralized web2 platforms, every statement, transaction, and action we take is collected and recorded by third-party platforms to analyze preferences and habits, aiming to construct user profiles. These profiles, combined with metadata algorithms, push relevant articles, videos, and even products to users for advertising, implying:

• Content Control: Any creator wishing to offer content to web2 platform users can lose the opportunity to share their views if their content is deemed illegal or fails to meet the platform's standards.

• User Data Control: Essentially, all data created on web2 platforms are recorded in the platform's database, owned by centralized service entities. This means web2 platforms can modify or even delete personal information and user accounts at any time. For example, Gmail has previously deleted user Gmail accounts and emails due to manual censorship errors, causing users to lose contact information overnight.

B. CATEGORIES OF DECENTRALIZED IDENTITY

DID introduces new breakthroughs, providing users complete control over the creation and use of their identities. Since the launch of DID, there has been vigorous market discussion, showcasing various solutions based on the understanding of decentralized identity (DID), including:

From a data division perspective:

VC stands for Verifiable Credentials, a standard proposed by W3C in March 2022. Verifiers can prove its authenticity. In its usage, VC plays three roles:

a) The claimant: holds the credential, with data inside needing to meet specific field, data type, and data arrangement requirements according to the credential type;

b) The certifying authority: verifies the data and confirms its validity. Then, it uses a private key to sign the VC, allowing the credential's authenticity to be verified without going through a notary and merely viewing the recorded data.

c) VC itself is a standard that provides universal criteria for different entities to verify data. Although achieving a certain degree of decentralization, VC data does not necessarily need to be uploaded on-chain, so it does not ensure user data ownership. Also, what VC describes is not the user's identity but a credential that meets a certain standard, such as education or health insurance. Therefore, in the long run, VC could become a standard for verifying the Internet but is not a decentralized identity.

Soulbound NFTs:

Soulbound NFTs do not support transactions or transfers away from the wallet on-chain, meaning SBTs belong only to a specific wallet address on the blockchain. Based on Soulbound NFT proposed by Vitalik, data and information carried by NFTs are "soulbound" to the user's wallet address, adding attributes such as non-transferability and addressing the issue of buying achievements or experiences by purchasing NFTs or credentials from others. SBTs link the unity between user behavior and identity. However, the "soulbound" aspect means it cannot be separated between NFT and user identity.

Beyond displaying POAPs or active NFTs of a user, user addresses risk receiving malicious scam NFT airdrops. In such cases, user wallets are forced to accept, and the NFT is publicly displayed on the blockchain, compromising reputation or even preventing transactions.

On-chain Identity:

On-chain identity reflects user identity through on-chain interaction behavior. A successful transaction means it's recorded in a blockchain block, publicly viewable, and verifiable. Of course, ZKP (Zero-Knowledge Proof) offers a way to verify transaction outcomes directly without disclosing specific transaction content. But, all user transactions and interactions on-chain can be recorded and analyzed.

Tracking Whales based on publicly displayed blockchain data to analyze their behavior follows the same principle. Services like Nansen or Arkham Intel labeling "Smart Money" vividly represent what Nassim Taleb (author of The Black Swan) mentioned: "Don't tell me what you think, show me your portfolio."

Degen scores further advance by analyzing on-chain data, extracting scores as evidence of a user's Degen identity, providing a new identification label. However, these labels lack appropriate context and offer basic introductions. For instance, an address labeled as smart money might just be one of an organization's wallets, and the buying or selling behavior of one address does not fully infer the organization's strategy. It might just be part of a delta-neutral strategy.

The actions of a single wallet address are insufficient to form a complete identity. Moreover, on-chain reputation can be fabricated, as users can compensate for interactions after a campaign or event by repurchasing NFTs on the secondary market. While this can be assessed based on the timeline and on-chain transaction records, it remains not very stringent.

Decentralized Domains:

Decentralized domains, initiated by ENS (Ethereum Name Service), represent a type of decentralized identity. ENS allows user wallet names based on Ethereum, and its "wealth effect" has become a symbol of decentralized identity. ENS can directly reflect identity through wallet address names by converting a random 42-character address into a readable wallet address. With its "first-mover" effect and the influence of the ENS brand, ENS has essentially become the domain with the most application scenarios. Additionally, it can edit the content of websites and subdomains, providing opportunities for customized identities.

Moreover, ENS can act as an on-chain contract, and various applications can be integrated on the blockchain. For example, Philand creates a unique metaverse for users through ENS domain information; Kola lab creates NFT music on a user's ENS. The visualization of information represents the integration capabilities of DID that ENS offers.

However, the tradable attribute of ENS can separate the user's identity from the domain identity, losing the continuous unity of decentralized identity. Also, interactions based on wallet addresses are still limited to on-chain transaction information. Furthermore, ENS is currently based on the main Ethereum network, and for Layer2s, Layer3s, and multi-level decentralized networks along with a multi-chain environment, it may not be comprehensive and accurate.

Wallet Addresses:

Serving as the gateway for users to interact with dApps on-chain, it can be said that dApps and wallet addresses are the users, while on-chain transaction histories are the portraits of the users. Using an on-chain wallet as identity, such as a smart wallet on Nansen, can also be understood as the user's DID in transaction scenarios.

In reality, a user can have multiple wallet accounts with different transaction behaviors. For example, one of an organization's wallets might be executing a one-way trading strategy, while another is only performing delta-neutral price arbitrage, meaning a single wallet cannot fully represent the actual behavior of the user. Moreover, in a multi-chain environment, each wallet address on different chains is an independent account, and users may have different transaction behaviors across chains. Therefore, a wallet on a specific chain cannot fully represent the user's DID.

Platforms like Lens and Galxe have introduced social graphs and NFT profiles through on-chain behaviors. However, most on-chain interactions are transactions. Currently, there's a lack of social application scenarios to provide on-chain social behaviors of users. In the future, as data infrastructure improves and on-chain costs decrease, we may see more social data development, leading to more valuable social relationships.

Stealth Addresses:

The latest stealth address proposal by Vitalik Buterin can separate the usage and viewing rights of private wallet addresses, ensuring separation of user identity and assets. The open and transparent nature of blockchain allows user identity to be inferred through asset information and on-chain behavior.

In his latest article, Vitalik proposed a new wallet type called stealth address. Stealth addresses are temporarily created by users initiating transactions through Elliptic Curve Cryptography (ECC). Public and private keys are then combined with the recipient's account address to create a secret wallet address and transfer to this address. The recipient can use their private key combined with the temporary public key to view the assets of the secret address and receive funds afterward. This corresponds to severing the connection with the user's identity by creating a one-time-use wallet address.

However, as Vitalik mentioned, each new address creation faces a gas fee payment issue, although only the recipient can control the account's assets, the new address does not have enough gas to cover the transaction fee. The privacy of the secret address is only for the recipient, and it remains an on-chain transparent activity for the payer. Gas fee issues could be resolved through wallet management or Account Abstraction forwarding, and Vitalik proposes using ZKP to prove user ownership and the secret account. Vitalik even suggests that different addresses could be used for different dApps, allowing users to manage dApps themselves. Implementing ZKP, cross-chain, and wallet design remains challenging, with hopes for new projects to unveil implementation plans in the near future.

Cross-platform Avatars:

3D avatars more closely match our imagination of identity, thereby ensuring identity consistency across platforms. While PFP NFTs are also used as avatars for identity representation, the tradable nature of NFTs makes it challenging to establish a binding relationship between identity and the NFT. The 3D attributes of avatars provide a visual representation and serve as embodiments in our metaverse, granting them a unique identity. For instance, Lifeform's Avatar NFTs can support user customization of interface and imagery, and can be utilized across different platforms. As on-chain NFTs, Lifeform's Avatar NFTs can directly interact with the metaverse and even participate in off-chain meetings, including Zoom and Google, thereby ensuring identity uniformity. We might even anticipate personalized metadata, similar to what is depicted in science fiction movies.

Although Avatar NFTs represent a form of alternative identity, currently focusing primarily on visual identification without incorporating extensive behaviors or additional identity-defining information. We can expect that Avatar NFTs might integrate metadata or multidimensional capabilities to convey more information, enriching the concept of digital identity in the virtual and physical worlds.

C. ATTRIBUTES OF DID

Identity Aggregation Capability:

DID transcends being merely a standard form of identity. Just as our real-world identity comprises various documents like ID cards, driver's licenses, and educational qualifications, a single certificate or document isn't enough to fully represent our comprehensive identity. Instead, it's the amalgamation of multiple certifications applied across different scenarios that form a complete identity. The distinction here is that identity information across various chains can communicate due to the fragmentation of different central data systems. Once data is uploaded onto the blockchain, it gains flexibility and can support various arrangements and combinations, presenting the user's identity in a more dimensional form, such as using a single account to participate in different games. Achievements like Soulbound Tokens (SBTs) can be displayed in a user's personal Avatar NFT as wearable medals or assets, and transactions on-chain based on wallet addresses can secure lower interest rates in lending agreements. This involves the integration of data sources, application scenarios, and even the combination of various DIDs. Privacy and Security of Identity Data:Given that the on-chain environment publicly displays data, privacy concerns are paramount:

1.Privacy: The on-chain realm is akin to a dark forest, where disclosing identities as well as associated asset and account information is unsafe, particularly as on-chain information primarily focuses on financial transaction scenarios. Revealing wallet addresses and transaction behaviors poses significant risks. Therefore, the privacy of DID regarding related information and content is essential. Maintaining anonymity is also a crucial need for many native users in the Crypto space. We've seen open-source plugins like semaphore and DID, offering privacy solutions like Firstbatch.

2.Security: This includes both information security and asset security. Information security primarily pertains to the protection of personal information, which could include off-chain details like identity, address, and educational background, as well as on-chain data like wallet addresses and transaction behaviors. Exposure of such information can lead to personal safety issues, while on-chain authorization behaviors are susceptible to hacking or malicious attacks. Therefore, proper handling and security measures must be ensured for the collection, storage, and usage of personal data. Although most projects currently store data locally or use services like AWS, the management capabilities of the team, AWS latency, and numerous other issues prompt the need for more modernized, decentralized databases to ensure user data safety.

3.Censorship Risk: Primarily refers to the potential risks inherent in data management and centralized storage. While not a common risk associated with DID, considerations regarding possible censorship risks during data collection processes are necessary.

II. WHY DO YOU NEED DID?

The need for DID stems from the diversity of individual needs and starting points, reflected in the choice of different financial products due to varying risk tolerances. Different trading habits lead to the use of various trading platforms; different aesthetic standards result in participation in different NFT communities. For project developers, DID can help them better understand user needs and design suitable products. For users, the variety of products on the market makes it challenging to find ones that truly meet their needs. DID can be the shortest path connecting products and users. To a certain extent, major web2 platforms have already captured user profiles very effectively, pushing relevant information to users at incredibly fast speeds. DID could be the key to offering a similar experience, and more importantly, this is Web3, where users truly own their data.

D. THE VALUE OF DID

The real potential of DID is believed to lie in:

The Ability to Monetize Data Ownership:

Data ownership means that the owner can choose to monetize their data. When data belongs to a centralized platform, that platform decides how to monetize user behaviors or personal preferences generated on its platform. For example, Google chooses to auction search results that attract user attention to the highest bidder among advertisers. Purchasing behavior helps Google deduce that a user might be pregnant, and they sell this information to sellers of maternity and baby products to push precise advertisements to the user.

Users become a product sold on the platform to derive benefits, and we can use the platform's products and services for free. In reality, it's because our behavioral data is collected by the platform to generate income, subsidizing the platform's costs and even generating profit.

When users have sovereignty over their data, they can regain the choice of whether to trade their data. You can choose to sell relevant data or choose not to sell it at all. Unlike centralized platforms acting as intermediaries connecting data producers and users and as data transmission gates to profit from data transactions, we can envision a data market connecting data producers and consumers, such as offering a P2P transaction model or dApps directly subsidizing users to obtain their usage data and consumption habits. This could also introduce a new business model for user-paid dApps. These could be achieved through user data and DID identity, which also depends on the blockchain we'll discuss below. A similar combination as introduced by DeFi lego could be offered by DID.

The Ability to Combine Onchain Data:

Once data is uploaded on-chain, it begins to have liquidity, being readable, usable, and verifiable through smart contracts or APIs. The process of using or verifying data can be charged through smart contracts, similar to what Chainlink does. Data feeds need to be paid for, and DID could propose a new data fee model for uploading user information on-chain. If a dApp wants to read or verify personal information or transaction data contained in a user's DID identity, it needs to pay in advance. For example, Firstbatch's SBT requires dApps to pay and get verified by a contract.

Moreover, DID design could even allow users to choose to agree to dApps reading relevant information or selectively disclosing personal information. For instance, for DeFi-related types, a dApp might only choose to display a wallet on a specific chain or the transaction profile of one of the wallets.

More importantly, we might not need to have a full identity on the same platform or dApp but can have different DIDs in different situations. Displaying different DIDs in various situations, choosing to protect identity while still being able to receive products and services that meet user needs.

E. APPLICATION SCENARIOS OF DID

As identification data, DID's utility mainly hinges on data usage or identity verification. dApps can utilize identification information to comprehend user needs, offer more personalized products, or verify if users meet the requirements of the dApp. The envisioned current scenarios include:

• KYC Requirements: Centralized Exchanges (CEX) require users to complete Know Your Customer (KYC) due to compliance and security considerations. Additionally, onchain lending agreements have started incorporating traditional financial KYC data on-chain to better manage risk, mainly based on compliance and risk control, etc.

• Proof of Personhood Authentication: Most notably used in combating sybil attacks in whitelists and airdrops, which means a single person could create multiple accounts or wallet addresses to receive various whitelists and airdrops. For project developers, this increases the cost of attracting genuine customers since the benefits are monopolized by the same initial users rather than being distributed among different new users. Thus, projects need to verify user proof of personhood.

• User Profiling: In the Web2 world we are familiar with, a vast amount of personal information and behavioral activities are collected, organized, and extracted by centralized companies to push precise content and advertisements to each user. Personalized content also enhances user engagement with the platform. This is why we believe one of the biggest potentials is for DID to be used in designing, proposing, and customizing content for users, including social and transactional scenarios.

• Social Scenarios: While current onchain data is primarily transactional, EIP4844 has indirectly significantly reduced on-chain storage costs (on Layer 2s), and following its implementation, a large number of data infrastructure projects such as storage, retrieval, and data analysis projects could be deployed. Social projects utilizing extensive data can be implemented at the application layer, and DID, along with other messaging dApps, can offer targeted services to users, providing a web2-equivalent experience.

• DAOs: For DAO members, on-chain identity is one of the options to reflect a member's contribution level. However, DAO activity scenarios don't wholly occur on-chain. A significant amount of work results and communications, such as vote snapshots, community proposals, offline activities, etc., all appear in off-chain scenarios. VCs can be used to prove off-chain educational qualifications, work experience, etc.

• Credit Lending: As one of the most widely discussed scenarios of DID, credit lending is prevalent in traditional finance. Credit lending and user information provided by DID can also support more lending deals to provide liquidity and have seen that some deals have started to offer uncollateralized credit loans.

III. WEB3 IDENTITY LAYERS

Web3 identity can be segmented into six ascending layers:

• Storage Layer

• Identity Layer

• Private Key

• Management Layer

• Authentication Layer

• Authorization Layer

• Proof Layer

The Storage and Identity layers serve as the infrastructure, establishing the DID standards. Large-scale user interaction begins at the Private Key Management layer:

To access Web3 DID, users first need an account for private key management. Typically represented by a non-custodial wallet, this wallet naturally becomes the container for identity information.

Following any login authentication process, like memory/PMP/biometric verification, users successfully access their wallets.

Different dApps can only connect with the wallet and read user information (such as wallet addresses, domains, transaction histories, behavioral data, NFT assets) after obtaining the user's authorized signature.

Finally, various types of VCs/SBTs/POAPs, etc., created by the Proof Layer projects, are stored in the wallet to verify the user's OG identity.

During interactions with projects or future applications, users can independently authorize which data to disclose to the project and which to withhold. Ideally, Zero-Knowledge Proof (ZKP) technology can be used in these links to obscure the direct connection between the user's wallet address and identity asset information.

F. WALLET - PRIVATE KEY MANAGEMENT ACCOUNT

Wallet solutions offer an identity, serving as the gateway connecting applications and login information controlled by the user.

What an ideal "DID wallet" looks like: It aggregates addresses from all major public blockchains and integrates the user's fragmented data across different chains while supporting basic signatures, transfers, and other transactions.

Secondly, it can display various certificates like SBTs/VCs/POAPs owned by the user. When interacting with a dApp, the user can independently authorize which data to reveal to the project, thereby empowering users to own their data sovereignty.

a) Smart Contract Wallet

Current popular wallets, like Metamask, lack these functions. A significant reason is that they fundamentally operate as EOA wallets, supporting only native operations of on-chain addresses - querying and transaction sending/receiving. In the future, smart contract wallets (e.g., Unipass, Argent, Plena) are expected to offer enhanced wallet functionalities. We optimistically predict the ultimate state, functionality, and applicable scenarios of these products with:

• No Private Key: Users won't need to remember seed phrases or private keys; various verification methods like biometric and device verification could be adopted.

• Account Recovery: Account recovery could be facilitated through biometrics, social proof, etc., ensuring social identity isn't lost.

• Gas-Free Interactions: Users might use relevant ERC-20 tokens for transaction fees or designate a specific account for gas payments without pre-funding ETH; or not incur gas fees for failed transactions.

• Mortgage/Account Transactions: Accounts holding assets and accumulated on-chain credit history can be mortgaged and directly traded on online markets; considerations for allowing lenders to effectively penalize breach behaviors are needed.

• Classified Account Management System: Users utilize dedicated accounts in different situations and have a more rational account management system. For example, a specific account storing ETH as a gas account and all other account interactions paid by this gas account; another storing only blue-chip NFTs to enhance security; one used exclusively for gaming activities.

b) Identity Wallet The primary function of smart contract wallets is to store and manage crypto keys for sending/receiving assets and signing transactions; another type of identity wallet is dedicated to storing identity, allowing users to create and issue requests, and enabling users to display their identity across application/platform data.

• Polygon ID Wallet: An official wallet to manage and store PolygonID identity, capable of handling requests, creating ZKPs, and verifying privacy; currently, there are few applications and developers that can customize its use cases.

• ONTO Multi-chain Wallet: Aims to help users create decentralized digital identities fully protecting user privacy through encryption algorithms. It integrates on-chain + off-chain identity, NFT, asset management, and information; ONT ID information is comprehensive but not applied to restricted scenarios, so users lack the incentive to verify.

• Nugget: Mainly focuses on e-commerce payment cases. It uses biometric technology to scan the user's face from multiple angles. Combining ID card scanning technology with Optical Character Recognition, Nugget completes the KYC identity verification process and stores it on-chain according to ZKP standards.

G. AUTHENTICATION LAYER - ACCESSIBLE FOR NEW USERS

Currently, most authentication methods for web3 social applications are based on connecting a wallet using a seed phrase or private key for login. To attract large-scale use of web3 DID, safe, accessible, and user-friendly login authentication methods are a prerequisite.

• SIWE (Sign-In with Ethereum): A pioneering authentication standard by Spruce, ENS, and Ethereum Foundation. SIWE has standardized a message format for users to utilize blockchain-based account login services. Building on this, Sign-In with X (CAIP-122) enables SIWE to focus on Ethereum and generalize the standard to operate across blockchains.

• Unipass: Utilizes Zero-Knowledge Proofs (ZKPs) to obscure the relationship between the mailbox and the user's wallet address while ensuring the messaging operation is performed on-chain. Conversely, web3auth's mailbox login information is decentralized thanks to its on-chain structure. This addresses the issue of storing private keys in the browser's storage as plain text, which poses risks to account information and assets.

• Hexlink: Encrypts user identification data and transmits it to the identity server. The server decrypts the data and constructs a Merkle proof of ZKP to verify the user's identity. It's compatible with both web and mobile applications and supports web2 authentication.

• Notebook: Combines KYC user identification with a login scheme. After registering a Notebook account and completing real-person biometric verification, a ZKP can be generated to prove the user's identity. Notebook is currently collaborating with Near to develop Notebook Auth.

H. AUTHORIZATION AND ACCESS CONTROL LAYER

While user identity authentication is one part, authorization determines which resources an entity can access and what they are permitted to do with those resources. It's divided into two types:

1- Access Management:

Instead of manually assigning access rights, the community can programmatically grant access based on token ownership, onchain activity, or social verification.

• Lit: Based on the access control protocol and MPC key management, a PKP (Programmable Key Pair) NFT represents cap public/private keys. Upon meeting specified conditions, PKP owners can activate the network's synthesis mechanism, allowing them to identify and decrypt documents/messages. Applications include token-controlled meetings, live streaming, and Google Drive access.

• Collab.land: Automates Discord bot management and token-based membership management.

• Guild.xyz: Creates membership statuses, social structures around on-chain and off-chain requirements, and builds unique user journeys across applications!

2- User Permissions Management:

When interacting with application projects, users will independently authorize which data to reveal to the project and manage the authorization status and rights for each dApp through a unified interface.

• EverRise Wallet: Features the EverRevoke authorization management tool, aggregating the authorization status of Token & NFTs across five blockchains. Users can view and manage permissions for Tokens previously interacted with across multiple blockchains, allowing revocation at any time. The authorization management experience will further improve in AA wallets, such as setting different read and write rights for various private keys or setting minimum transaction thresholds and automatic trigger conditions for specific transactions.

K. PROOF LAYER

Serializing data on-chain via addresses to create "proofs," "reputations," and "credentials." Based on verifiable on-chain data, this identity is not confined to a specific platform and can be utilized across various situations.

We believe the Proof Layer is closest to the end-user and continuously generates high-value data, making it the product layer with the most potential to create a unified DID.

1- Data Ecosystem

The most significant characteristic of social network protocols is their ability to attract users to generate new data. Based on data linking, the 2B2C network effect is established, naturally becoming the unified identity standard for the industry. While most data projects lack clear Token incentives, they promise to naturally attract interaction.

• Galxe: Galxe ID labels each address by issuing certificates and integrating user data across different chains, both on-chain and off-chain, Web2 and Web3; currently, over 4.2 million users have Galxe IDs. This protocol plans to launch a standard system for Galxe ID certificates, including storage, verification, utilization, and privacy management modules.

• Lens Protocol: A decentralized social graph protocol built on Polygon, backed by Aave (lending protocol). Aiming to bet on Web3 social networking, its founder has publicly stated the ultimate goal is to integrate Web3 social networking and DeFi, turning the social graph into a trust graph and offering low-payment loans through the Aave protocol. So far, Lens has amassed over 100,000 users, and the project's growth rate is impressive with Phaver, Orb, SteamDAO, Lenstube, etc.

• Farcaster: An open social networking protocol supporting multiple clients. Farcaster adopts a hybrid on-chain + off-chain architecture, where identities are stored on Ethereum and used to ensure security, interoperability, and consistency of the system. Identity is managed through Ethereum addresses, and off-chain messages are signed using Ethereum accounts. User data is encrypted and signed according to identity and stored on user-controlled servers (Farcaster Hubs). The reason data is not stored on-chain is due to the high computation costs and slow speeds on most L1 and L2 networks. Based on Web3 wallet identities, SBTs, and NFT roles in digital content interaction, Farcaster users can engage with DAOs and communities, though no identity-related products exist within its ecosystem. The ecosystem includes projects like Instacaster, Searchcaster, CastRSS, Configcaster, etc.

• Nostr: A social networking forwarding protocol banned by Twitter. Established in November 2020, Nostr is a versatile Internet infrastructure still in its early stages. Originating from the BTC community, it has a close relationship with the Crypto community. In the future, certain tokens could be issued for various storage functions to incentivize users.

2- Domain Services

Both domains and wallets can be considered identity management tools. Wallets can use domains to replace public wallet addresses, using the domain as a "name" when interacting with applications. Domains can integrate several addresses on different blockchains or even multiple wallet accounts.

• ENS: With over 2 million registrations, ENS collaborates with SpruceID to upgrade EIP-4361: Sign-In with Ethereum. If successfully implemented, ENS will replace the Connect Wallet, allowing the domain to become an easier entry point for Web3. Additionally, ENS aims to complete the vision of a “Web3 Name” by integrating a range of identifiers within the domain.

• SpaceID: Offers registration services for .bnb, .arb, and most recently .sei domains. SpaceID also aims to link the domain with multiple user addresses on different chains and users' Twitter and other Web2 accounts to become the most popular Web3 domain. Compared to ENS, SpaceID's product development and expansion pace is faster.

3- 3D Avatars

The pursuit of more realistic experiences and the development from 2D to 3D identification will be an important trend. Role-playing and interaction experiences in the Metaverse will be far superior to 2D website interactions. Gaming also represents a natural social segmentation context but is more challenging to implement and requires more time and technical effort.

• Philand-Metaverse: Users can receive finished NFTs based on onchain behavior through Phi, corresponding to donations, project interactions, etc. The pieces, like Lego blocks, help build the user's Metaverse world. Users holding an ENS domain can automatically create land and freely combine their web3 world based on components from their on-chain behavior and link with other ENS players. Phi previously won in the NFTHACK2022 and BuildQuest hackathon by ETH Global and also received a grant from Uniswap. Phi is also one of the winners of the second round of the Lens donation plan.

• Lifeform-3D DID: A provider of 3D digital identity solutions that received seed investment from Binance, focusing on developing

4- Decentralized Compliance Solution (Web3 Decentralized Compliance)

Solution to replace traditional KYC but still ensure legal compliance when there are more stringent crypto regulatory policies like MiCA. Could be a painful anti-money laundering (AML) option in the Web3 space.

• PureFi: An outstanding project on decentralized compliance, Web3 KYC/AML product. Uniswap has plans to integrate PureFi in its 2024 update roadmap.

• Polygon ID: Provides privacy-focused tools to help users control their identities across any digital platform. Polygon ID allows users to use zero-knowledge proofs to interact with smart contracts, based on VCs issued off-chain. Supports both web3 and web2 applications.

L. PRIVACY ISSUES

Discussing identity infrastructure without considering foundational privacy principles is incomplete, as privacy is crucial across all identity layers. The past decade's adoption of blockchain has spurred the development of encryption technologies like zk-proofs.

ZK identity protocols, offering frameworks and open-source libraries for identity prototypes, authentication, and proof generation, utilize zk-SNARK pairs for each identity. These pairs prove identity ownership and confirm it in a privacy-preserving manner. PolygonID is leveraging this protocol for their identity wallet development.

ZKP applications have garnered significant attention, illustrated by:

• ZKP Platforms: Sismo

• Private Airdrop: Stealthdrop

• Anonymous Communication: heyanon

• Anonymous Voting: Melo

IV. IDENTITY AS THE GATEWAY TO WEB3

Reflecting on Web2 portal evolution, the development sequence was:

Portal → Search Engine → PC Social Platform → Mobile Social Platform

It's evident that portal products evolved from single-function and passive to complex and integrated. The methods of accessing and creating accounts in Web2 are familiar and streamlined, simple and quick. In contrast, Web3 is still improving this aspect, akin to traffic connectivity that becomes smoother over time. The goal for Web3 founders is to achieve simplicity, convenience, and speed while ensuring security.

Optimistically, this gateway could feature:

• Unified Identity: A unified identity layer that interacts seamlessly, with records akin to a Credit score system, where all user interactions on-chain form a unified Web3 identity certificate.

• Super Convenient User Interface: The most rational form of this system could be a Web3 Wallet, potentially shaping into a super account system akin to Twitter or Gmail.

• Auxiliary Applications: Leveraging blockchain's integrative capability, the wallet's auxiliary part could incorporate various protocols like social, game, DeFi, DID, payment for safe user engagement.

• Privacy Protection: Integrating intermediary privacy software to offer end-to-end encrypted communication, identity authorization, and personal information protection.

• Enhanced Security: With encryption technology and AA development, users could opt for more and better security mechanisms; future key management mechanisms (MPC/multisig/non-custodial) will allow independent choices to meet diverse needs.

• Data Ownership: Personal/social/identity information stored in decentralized storage solutions like Arweave or IPFS, controlled solely by the user's private key.

• Censorship Resistance: Users are no longer banned by centralized institutions like Meta or government regulations!

Though this post is lengthy, congratulations to those who made it this far. It would be a pity to miss out on sharing deep, free research due to criticism!