An Operating System for Digital Identity

An Insufficient System

After the failures of centralized exchanges like Celsius and Voyager, the need for trustless asset custody is clear. If you entrust your private keys to a centralized platform, you don’t own your assets. The exponential growth of self-custody wallets, throughout the DeFi summer, proved its feasibility, and “the year of the wallet” hype has brought unprecedented investment in wallet development. Despite the UI improvements and the adoption of crypto-native solutions amongst the broader market, we have yet to solve perhaps our greatest problem: seed phrase recoverability.

It is fascinating that wallet companies receive billion-dollar valuations while recoverability remains unsolved. Requiring a user to learn what a seed phrase is, how to store it correctly, and bear the burden of losing all of their assets if it is lost is a heavy ask. Reaching the early majority of users required to scale the ecosystem is impossible while the experience remains this complicated. And you cannot justify these valuations without scalability.

Fragmented Patches

There are some attempts to solve the recoverability problem: smart contract recovery, backup to iCloud and 1Password, and multi-party computation. However, these are workarounds, not direct solutions. Each has its pitfalls: files can get corrupted, files can be compromised, no recovery for lost devices, and high user fees. Additionally, they are not scalable across wallet providers. Every solution is implemented independently, with software and processes unique to them. In their attempt to win the wallet war, providers reinvent the wheel each time (and usually end up with something triangular). It is a challenging task since no one quite agrees on the requirements. But we can do better.

We Have the Technology

The technology exists today to create and standardize a sector-wide scalable solution to recoverability. Using Shamir secret sharding and threshold signature schemas, an independent, off-chain network for recoverability that any wallet provider can integrate with is possible. Each wallet user can utilize the network user pool to add to their recovery system, regardless of their wallet provider. This alone is a reason to rejoice, but it goes much further.

Recoverability is one of the primary issues holding back self-custody. However, it is the first of many barriers to overcome for wallets to reach their full potential of digital identity. Once users feel comfortable storing their assets in wallets, the door is open to storing other important personal information. The ability to store this data is being developed with verified credentials and NFT technology. This network will have the capacity to grant and control access to these credentials. Another barrier is communication between users and applications. This network will enable a direct connection between wallet and application. The user will not have to choose their wallet provider from a menu. Its breadth of application is due to a central innovation: a chain-agnostic network that allows users to compose their cryptographic identities and relate these identities to each other. This abstracts recoverability and communication allowing providers to expand their capabilities. In other words, an operating system for digital identity.

Out of the Rabbit Hole…

Without a flexible and open standard of communication infrastructure, cryptographic digital identity cannot compete with existing Web2 identity solutions. A network designed specifically for managing digital identity will be the first of its kind and give crypto wallets a fighting chance to digitize our identity. Our community uses the phrase “down the rabbit hole” as a badge of honor, lauding those who spend the hours, weeks, months, and years it takes to understand and utilize Web3 technology. However, this lost time and energy is not to be lauded: it is one of the industry’s greatest points of failure. It is time to make cryptographic identity usable. It is time for wallets to come out of the rabbit hole and into the light.

Jugal Patel
t. @joogz6
l. Jugal Patel

Frankie Pangilinan
t. @Littlefrankiebe
l. Frankie Pangilinan

Mu Methods LLC
t. @mu-methods
l. Mu Methods

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