Background

With the rapid development of Web 3.0, there is a sea of fragmented and anonymous user information that is scattered through different addresses on different blockchains. These do not properly match the user's on-chain identity information. However, many application scenarios require the user identity as a supplement. For example, the Sybil project initiated by Uniswap will allow Delegators to set up On-chain Identity to achieve better and more effective on-chain governance.

Although Sybil only supports simple functions such as binding wallet addresses to ENS and Twitter accounts currently, since the Sybil project was rolled out, it was quickly adopted by leading DeFi protocols such as Compound and Aave. This also indicates the strong market demand of an On-chain Identity in the Web3.0 world.

Coincidentally, in the article How Coinbase thinks about the Metaverse, Coinbase CEO Brian Armstrong believes that:

“In the Metaverse, our identities will have to include an easy login, a unique ID, an avatar that represents us, metadata that follows us, and Attestation so we can prove who we are.”

Moreover, Coinbase plans to cooperate with Ethereum Name Services to develop on-chain identity products in the Metaverse, which fully demonstrates that in the era of Web3.0, On-chain Identity will be an integral part with a huge scope for innovation.

Why We Need On-chain Identity

With the rapid development of Web 3.0, users can independently realize a true On-chain Identity with the help of blockchain technology, which will create the following values:

1. Self-Control. Decentralized identity can return the control of the ID to the user. In the past, users often only had partial access to the account, which would be controlled by the project party or modify the user's data through the background. This approach carried the risk of compromising the user's security.
2. Privacy. Users no longer need to register accounts with phone numbers, ID cards and other information. The use of decentralized identities by users means that users’ privacy will no longer be stolen by centralized platforms, eliminating the risk of using this data to commit untoward acts, such as harassment through exchange customer service.
3. Convenience. It enables users to access and participate in blockchain projects using only one decentralized identity. This lowers the threshold for users to enter the blockchain world, and also improves the user experience.

Privacy Vs. On-chain Identity

Many people may ask why people in the crypto world would pay extra attention to privacy. Who would be willing to bind identity information on the chain? At first glance, this question seems to be true. However, with the prosperity of the Web3 world today, we can cite numerous examples. As a use case, users will produce high-quality articles on Mirror, bind their address to the Ethereum Name Service domain name, and set up Crypto Punk as an icon to participate in the governance of some well-known communities. They will also vote and build their own influence.

The so-called DID and privacy are not in conflict. Just like in the Web2 world, many users have set up Twitter/Facebook public accounts, even including some celebrities who pay great attention to privacy.

Beyond Identity

Based on the On-chain Identity information, not only the user's on-chain identity can be realized, but also the credit score can be comprehensively built based on the user's bound social account information and multi-chain address information, similar to Alipay's Sesame Credit. In the Web3 world, no one has to rely on identity information to complete a DeFi application; an anonymous digital currency address is all that is needed. The digital currency address records all the historical transaction information of the user, such as participation in the mining of a DeFi project, a token swap completed on a decentralized exchange, or even a recharge or withdrawal information from a centralized exchange.

Therefore, we can build a DID-based on-chain credit system based on the on-chain transaction information of these users. The credit score obtained according to this credit system will comprehensively reflect the personal credit of the DID holder. The higher the score, the higher the credit. You can enjoy the benefits of credit in more places, such as the voting weight of participating in on-chain governance. You can also participate in the lending platform to enjoy lower interest rates or higher mortgage loan rates, and in IDO to gain more priority and quota.

On-chain Identity Landscape

Projects in the field of On-chain Identity have been in the spotlight recently, for an important feature of Web 3.0 is Sign In with Address. Through that, a large number of user activities will be recorded on the chain around the address, and hence be open to being publicly queried.

1. Layer 1: Open Standard. For example, the DID standard of W3C and that of the Decentralized Identity Foundation. They both have formulated DID-related standards, and the project is open source for the public. Neither of them has any token incentives.
2. Layer 2: Infrastructure. In Layer2, there are two subcategories: DID Dedicated Chain and Primitives. The DID Dedicated Chain projects, such as Ontology and Litentry, are characterized by public chain projects and Native Tokens that promote their DID standards and protocols. The Primitives project is characterized by the fact that many DID applications will realize On-chain Identity through them. It has the characteristics of the basic layer, as well as ENS that does domain name resolution for the Ethereum address information, and Ceramic that provides the underlying data frame for Identity on the chain.
3. Layer 3: DID DApps. They are projects focusing on DID applications that have emerged in the past year or two, such as Civic that integrates users' off-chain medical, financial, and KYC information, and Sismo.eth that focuses on zero-knowledge proofs to protect privacy.
4. Layer 4: Wallets. There are mainly wallets on this layer, because addresses and On-chain Identity verification ultimately need wallets such as Metamask.

Among all the above projects, those at the Infrastructure layer will capture the beta growth of On-Chain Identity, and so they are attracting the interest of Fi+ Capital. The Infrastructure layer is represented by ENS and Ceramic, and they both have created their own ecological projects. Spruce and Sismo.eth are both upper-layer applications based on ENS, while iDX is an Identity application based on Ceramic's bottom layer.

On-chain Identity In-the-end

If you want to ask what the final outcome of On-chain Identity is, my personal opinion is that On-chain Identity will not only be a passport in the Web3 world, but will eventually form a demographic portrait of the crypto-world. Let's take a look at the user behavior data of Web3.0 now:

1. The transaction history is recorded in various blockchain browsers, such as Etherscan.
2. NFT asset information can be viewed on the Opensea interface.
3. Asset Dashboard information on asset management platforms such as Zapper.
4. Social information on social platforms such as Inb0x.
5. The content information created is on the Mirror platform.
6. Social interaction through Web3 communities like Showme, BBS network and other SocialFi platforms.
7. The participating community DAO governance information is in Snapshot.

The current behavior data of Web3 users is still fragmented, scattered in various Web3 applications, and the behavior data of Web3 users will only be more abundant in the future. However, they are all unified under the user's wallet address, and the data is on the chain and can be checked publicly, unlike Web2 applications where data is sealed in each centralized server. Therefore, On-chain Identity will eventually integrate all on-chain behavioral data around addresses and form a demographic portrait of the crypto world.

Based on this portrait, the commercial value behind it will far exceed that of companies like Baidu and Facebook that monetize user portraits. This is mainly because On-chain Identity will open up the behavior data of users participating in all applications on the chain, while Baidu and Facebook can only be limited to a single or a limited number of giant apps to build user portraits.

The article Demistifying Digital Identity published by Ceramic demonstrates a dynamic and interoperable identity graph that On-chain Identity can finally describe (as the picture below shows). All the on-chain behaviors, social media data and other information of a user can be finally aggregated into a unified On-chain Identity, and a demographic portrait of the user is formed.

Parting Thoughts

In 2022, the adoption of on-chain IDs will accelerate with the further development and enrichment of Web3.0 applications. There may still be some uncertainties in the secondary market, but it is a safe guess that the world of Web 3.0 has begun to grow wildly. What Fi+ Capital needs to do is to constantly discover outstanding entrepreneurs and entrepreneurial projects, and help them grow in the aspects of technology and capital.

Therefore, Fi+ Capital will pay close attention to the application of the On-chain Identity sector, and actively support entrepreneurs in related fields. If you are cultivating projects in related fields and are seeking funding,

please contact us: contact@fiplus.io

Website: www.fiplus.io