Your On-Chain ID Is the Key to Unlocking Web3’s Potential
In a world of abundance, attention is the scarcest asset. The internet has made it cheaper and more efficient to share articles, images, and videos than ever before, creating a wealth of data.
In the computerized world, your data is the fuel that drives decisions. Centralized governments work together with the walled gardens of social media to control how we are represented online. The data is not owned by us. It’s owned by them, and they can do whatever they want with it, whether that means using it to show you ads or deleting you from the platform, destroying all the posts and social capital you created along the way.
Now we have a new tool: blockchains. Blockchains provide a credibly neutral settlement layer to account for scarce digital assets. Everyone who uses the blockchain has a unique identifier (a public key) and transactions are verifiable. These simple features enable Decentralized Identity (DID), an online profile where your reputation is not in the hands of third party actors.
Decentralized Identity or Digital Identity?
Digital Identity can be thought of as your collective actions on the internet. This can mean:
The sites you visit
The purchases you make
Accounts and posts created
These are all separate from each other. Each site has a particular idea about who you are. Yelp knows the kind of food you like, Facebook knows who you’re friends with, and Google knows what you’re interested in. Each makes a killing on the data you create by showing you ads and selling ad space to other companies.
With the advent of blockchain technology, we also have a decentralized, on-chain identity. Your decentralized identity (DID) is made up of three parts: your wallet address (public key), the assets you own, and the transactions you’re associated with (sent and received).
What makes decentralized identity so interesting is the fact it is blockchain-based. This makes activity a scarce asset. In Web2-land, the cost of creating a new account is often the same as creating a new email address (~2 minutes), making it trivial to spin up accounts to “brigade” and hate on something, and people are often not privy to who is actually behind these accounts.
But in Web3, each wallet has to have some money to pay for gas, obtain membership, and critically, the history of user activity is entirely public! This creates a novel way to evaluate online personas and users still get to control their data.
Certifications can be associated with wallet addresses, artists can identify their true fans via NFT purchases, and financial agencies can leverage online transaction histories to determine the optimal level of credit for lending.
The cost of creating a new identity is not just the cost of creating a new wallet, but also the cost of creating a transaction history.
Reputation accrues to your wallet through the protocols you’ve interacted with and the assets you own. These are hard to fake. As mentioned before, each interaction with the blockchain network has a transaction cost — in terms of fees and time.
This history of financial transactions has been used to determine users’ eligibility to receive token airdrops from various protocols. Compound kicked off DeFi summer with their airdrop, and protocols now have access to a granular history of early adopters and devout believers.
Another example is BANK. The BanklessDAO token, BANK, was distributed to wallets that held a BanklessHQ membership POAP. POAPs and NFTs can be used as portable credentials and certificates of completion. No one can take them away without a serious breach of wallet security. In the future, when people earn a degree, they’ll likely receive an NFT as well.
The protocols you interact with can also tell a story about who you are.
Did you participate in ConstitutionDAO? How about Gitcoin? Or maybe you donated some crypto to a COVID relief fund? If you answered “yes” to these questions, it would appear that you’re charitable giver, but you might be fibbing. On the other hand, if you can sign a message to prove you own the donating wallet address, you could prove these interests and the degree of your enthusiasm.
Proof of Fandom
Fans can choose to buy NFTs from their favorite artists in support of their craft. This creates an on-chain Patreon, where creators can gift special products or services to early fans.
Imagine a promising musician is looking for a way to release an album. The artist might release music on SoundCloud that has a lot of plays and a following on social media, but the income they receive is not enough to fund a studio session. The artist then tells his fans that he’s releasing a commemorative NFT to help launch his next album, and earns enough to make the studio session affordable.
If the album does well and launches the musician’s career, that NFT becomes a valuable collector’s item, potentially making the buyer/holder a profit. The musician also knows the wallet address of this “super fan” and can give them special privileges to shows, merch, or token airdrops.
DID has the potential to open up the data that makes Facebook, Twitter, and other social media sites so powerful: the social graph. The social graph is used to determine one account’s relationship to another, mapping the network effect that makes these social media services “sticky”.
On blockchains like Ethereum and Bitcoin, public transactions show the relationships between wallets openly and transparently. This creates an instant social graph for payments and allows any service to bootstrap their own network, avoiding the “cold start problem”.
Blockchain transactions may also be used to determine your credit risk, enabling under collateralized lending — a huge catalyst for increasing capital efficiency.
DIDs and Sybil Resistance
Sybil attacks are security exploits that take advantage of an application’s reputation systems, or lack of, by creating many accounts. Both Bitcoin’s and Ethereum’s consensus protocols are methods of protecting against such attacks. DIDs are a great tool to resist sybil attacks as a direct result of the cost to build a reputation associated with that DID’s address.
We’ve mentioned Gitcoin and how having contributed to a Grants round adds to your address’s publicly verifiable level of philanthropy. By Gitcoin Grants Round 10 the team had to implement a tiered DID trust system where users stack several crypto-native identity projects together in order to increase the weight of that account’s donation towards the matching pool.
Because of the way the matching curve distributes the funds from Gitcoin’s matching pool, it’s more favorable for the project to receive many modest donations as opposed to fewer, but larger, donations. This creates vulnerability for a possible sybil attack. Gitcoin’s solution was to implement their tiered trust system to mitigate this exploit.
Currently, there are nine trusted identity applications including Gmail, Twitter, SMS, and Facebook, with the remaining five being crypto-native. Donors can maintain complete anonymity if preferred, but this is the least efficient contribution method.
DIDs are an important tool in solving these sybil and proof of humanity problems, not just for Gitcoin, but any application that needs to gate access for similar reasons, or against yet unforeseen exploits.
Although your Gitcoin account isn’t blockchain-based like your wallet, it is an excellent example of an early stage use case for a DID system. Gitcoin is already trying to further integrate Web3 through the use of applications like ENS — allowing users to verify accounts by linking to an ENS domain.
Emerging DID Systems
ENS, the Ethereum Name Service project, is maybe the most well-known DID protocol to date. Even though ENS is an Ethereum-native project, it integrates data from the Bitcoin, Litecoin, and Doge blockchains, associating all those L1 addresses with the same ID. They also have several Web2 integrations such as Discord and Twitter.
Modeled after the domain name system (DNS), a core system of the global web’s digital infrastructure, ENS acts as a versatile, modular building block for your DID. Having an ENS name not only just makes it easier to identify an address, but it’s self-sovereign and permissionless when compared to DNS. Represented as a very versatile NFT, ENS aggregates all the pieces of who we are in cyberspace.
Proof of Attendance Protocol
The POAP project builds on the Gnosis L2 network and provides a cost-effective way for projects and communities to keep track of their users and each user’s commitment to the project. Users receive NFTs to prove their attendance of certain events, adding a new dimension to your DID.
Did you attend ETH Denver? Did you participate in a hackathon? Did you sign up for a Bankless premium membership? POAPs aren’t just for proving each user’s event attendance, they can be used to measure engagement with these events. Bankless Academy issues them at the end of each completed lesson. They have an accurate record of completions, and each user has permissionless proof of participation: no need to come back to Bankless Academy to ask for a reference letter or get the certificate reissued if it’s lost.
Bankless Academy could use similar methods as Gitcoin to prevent POAP farmers attempting to gather as many POAPs as possible, but there has to be a more decentralized way to tackle this problem (without resorting to Twitter).
Having an ENS name is one thing, but the cost of being on L1 is high and ENS does not guarantee that each account has a unique owner. No project has provided a full solution yet, but BrightID is trying by constructing a decentralized, crypto-native, social graph specializing in this ‘uniqueness’ problem.
It works by allowing other users to confirm your humanity, and you confirm theirs, and the certainty to which BrightID can attest to your uniqueness is related directly to how many confirmations/connections you have in your social graph. This turns uniqueness into a question of probability.
BrightID has been around for a couple of years, featured on the Bankless Podcast in 2020, and they are one of the five decentralized options Gitcoin trusts to verify your account. Their aim is to provide a blockchain-agnostic social graph that proves you are a unique person by mapping your connections (your social graph) to guarantee that you haven’t made multiple accounts.
The Lens Protocol is the newest addition to the DID ecosystem. The developers of the DeFi lending/borrowing protocol Aave announced the project in February 2022, and subsequently held their inaugural hackathon.
Lens is built on Polygon and works by tokenizing everything we consider ubiquitous on social networks — likes, follows, shares, profiles — and wraps them all into NFTs.
‘NFT-ifying’ these social capital assets creates new primitives that Web3 can leverage across the ecosystem. This could make it more expensive to buy likes, retweets, or followers.
The hackathon, LFGrow, spawned some proof-of-concepts, one of which enables gated commenting based on the on-chain reputation of the address and encrypted messaging. While it’s still in very early stages, the crypto-native, social capital legos being added to our DIDs can change the way we interact online. Instead of being forced to use walled gardens, we can create and give social capital on a credibly neutral settlement layer.
Graphs of Graphs
DID applications have not had their own bubble, like DeFi and NFTs, but their time is coming.
Because these protocols are permissionless, they can build upon each other and create value for everyone: the essence of positive-sum games. Twitter and Facebook engagements are not portable. The reputation you accrue on one platform is not immediately valuable on another. But with DIDs, interoperability is enabled by default, and the ownership of your social capital will be under your control.
As new primitives are added to the crypto ecosystem, each adds to the total potential strength of the overall DID system. POAPs can add to the value of your BrightID social graph, and conversely your BrightID reputation could act as a key to acquire gated POAPs. Both could add to the value of your more universal ENS.
Your DID is almost certainly not going to be one protocol, but many, building a social graph of social graphs.
This article initially appeared in BanklessDAO’s Weekly Rollup newsletter on April 22, 2022.
Jake and Stake is a writer and editor at BanklessDAO. He is the Writers Guild’s Governance Coordinator and runs the State of the DAOs newsletter, with a background in software engineering and cybersecurity.
Austin Foss is a lifelong technology enthusiast with a passion for single board computers, micro-controllers, self-hosted software solutions, and distributed public technologies. He writes on these topics with the goal of promoting use of such technologies and the value they bring to each individual when paired with a free exchange of information.
BanklessDAO is an education and media engine dedicated to helping individuals achieve financial independence.
This post does not contain financial advice, only educational information. By reading this article, you agree and affirm the above, as well as that you are not being solicited to make a financial decision, and that you in no way are receiving any fiduciary projection, promise, or tacit inference of your ability to achieve financial gains.
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