Without going deep into the centuries old philosophical discussion on what identity means, you could argue that a wallet represents one's digital identity within blockchain-based ecosystems. Aristotle and Leibniz defined identity in the quantitative sense as a way to identify an object or person as a unique individual (Solberger, 2013). In this way one could view Web3 identity as a wallet with a unique on-chain wallet address (and private key). As argued by Kominers and Esber (2022) one of the main selling points in Web3 is that every wallet would represent a unique identifier of a person or entity. There is also the qualitative meaning of identity which relates to classifying a person to conceptual attributes such as social role, ideals, values, capacities, experiences, etc. (Solberger, 2013). In this manner a wallet could represent qualitative identity as one could view the on-chain history of credentials, holdings, activities, etc. in order to have a view about who the person is.
Opportunities of On-Chain Identity
With on-chain identity one would be able to present one's identity based on verified information on holdings, credentials, interests, subscriptions, memberships, protocol interactions, protocol voting behavior, etc. An identity-linked credential mechanism is applicable to a whole host of use cases such as education, work experience, extracurricular activities, credits score, etc. Furthermore, one could acquire direct on-chain credentials by participating in DAOs or transacting with specific protocols. As the on-chain ecosystem grows one could verify which books one has read, which articles one has written, which research ones has done, etc. It would allow individuals to present a true picture of one’s identity without the conventional constraints of the physical world which are typically used to identify people. Furthermore, as argued by a report of web3 studios (2022), digital identity could help bridge the trust gap online and in the metaverse by allowing appropriate verification. Digital identities would allow online engagement within a trustless yet verified context.
An interesting application is the ability for individuals or organizations to be able to verify the identity of others without needing to rely on an intermediary. This could be particularly useful in industries such as finance, where accurate and reliable identity verification is crucial for preventing fraud and money laundering. By using digital identity systems, individuals and organizations can securely and easily verify the identity of others through the use of verified credentials or zero knowledge badges. For example, one’s age, credit history or employment status could easily be proven and verified in a way that does not rely on intermediaries, such as banks or governments. A direct example - one of many - includes the job market where Web3-based identity systems could be used by employers to verify the identity and qualifications of job applicants. This is related to tokengating which is an approach to restrict access by requiring the user to possess a specific set of NFTs or tokens. The tokens acting as keys can be used to unlock online content, multimedia, software, access to venues or discounts and much more. With digital identities, tokengating can be combined with proof of humanity/identity and only allow any unique person to access a specific perk once, even when they hold multiple tokens.
On-chain identity systems could also be used to facilitate collaborations between organizations more easily. The main bottleneck to more partnerships, especially for smaller brands, is the headache of sharing data with other brands. For example, if a local chain of gyms in London wanted to partner with a chain of gyms in Manchester, allowing members of either chain access to resources in both cities, they would need to build adapters to each of their membership databases that lets the other chain determine whether someone is a member of the other chain without revealing sensitive information or exposing themselves to attackers. In most cases, this is too costly for brands even when collaboration can be beneficial and lucrative. However, if both of these chains used on-chain memberships, each chain would be able to verify an individual's membership of the other chain without much effort and especially without needing to change anything about the brands’ infrastructures.
One area of technological improvements towards the creation and management of digital identity is within the sphere of privacy. Using cryptographic techniques, individuals could be able to store data about themselves, such as credentials or attestations, and prove ownership of these pieces of data in a way that reveals little else about their identity. Anything that constitutes a verifiable credential can be preserved securely allowing you to interact with a host of decentralized applications and societies. Credential building can then be combined with privacy protocols to a whole branch of new scenarios without fear of data leakage. Data that we would find unthinkable to share can be securely hosted in your wallet and only shared with the access-controlled, permissioned and privileged. Credential building across a multitude of different platforms becomes trivial as the universe of all your online data points is self-owned rather than split across a multitude of different platforms (or societies) residing in different legislations.
Technologically, this focus on privacy has been fueled by the research into zero knowledge proofs and by toolkits that allow proof systems to be built more quickly and efficiently. On a high level, zero knowledge proofs use number theory to prove knowledge about a piece of information without revealing that piece of information. Applied to a macro scale, privacy preserving identity methods, such as zero knowledge proofs, could enable the creation of decentralized societies in which members are vetted in a privacy preserving way, without giving up personal information. One application of this could be to enable more open discussions between members of the society, for example in the course of a deliberation on governance. Emulating the popular Chatham House Rule, members could take part in discussion and voice their opinions without other members of the society knowing who exactly made specific points. This ensures minimal credentialing while preserving anonymity, as well as potentially eliminating biases in the reception of information based on where it originated from.
A digital identity should not be necessarily restricted to a single one, and you could have multiple digital identities. For example, you can have different identities based on different topics, privacy requirements, etc. This would allow people to more freely contribute to certain discussions or topic where it would be difficult based on one’s conventional identity. Take, for example, an oil executive who would like to use his expertise to contribute to solutions to decrease the world’s dependence on fossil fuels. His contributions could compromise his “conventional” identity as his employer would not necessarily agree with this point of view. You could create a digital identity – that is separate from one’s conventional identity – that would work on these problems and receive a reputation for the contributions (e.g., five papers written, provided funding to activists and research, etc.). Plural identities could, however, cause unintended consequences like sybil attacks (there is a great discussion on this on the Gitcoin forum). It is important to note that each digital identity would need to start from “zero” with its own wallet holdings, credentials, reputation, etc.
An identity should not necessarily be restricted to a single person or entity. One could create an identity which is managed by numerous people, entities or “single” identities. This is similar to a multi-sig wallet or a social media account that is managed by multiple people. The people behind the decentralized identity could be both private (anon) and public, and the identity itself could choose whether it publicly shows whether it represents a single or decentralized identity. In this case we could talk of a decentralized identity as the management and actions of the identity are decentralized themselves. The identity would thus de facto represent a DAO where its members have stakeholdership in and governance of the identity. Maintaining a valuable identity can be quite intensive as you would need to interact with the community, create valuable content, provide thoughtful contributions, etc. In a sense this would create a new paradigm of actors that are present in societies. The line between people and entities gets blurred this way and one could interact with each other in terms of identities.
Co-Author: Konrad Kopp
If you want to talk about ideas around NFTs, DeFi or Web3, feel free to shoot me a message! @KristofLommers