How Web3 Digital Identity Plays a Practical Role

If you have a friend through Bumble, you will have a first date soon. She would usually say, "I have checked on the Internet. They were members of the football school team when they were in college. They worked in a start-up company. There was a very cute Labrador dog named Dusty who bought a house a few miles from me seven months ago. In case you never see me again, this is his contact information."

A small online survey can tell you a lot about people you have never even met, but how do you know that the information is true? The MTV reality show "Catfish" has proved again and again how easy it is to forge an online identity.

So where is the solution? Yes, you guessed right - blockchain.

The decentralized identity platform based on blockchain will play an important role in enabling people to prove their identity.

With the help of decentralized identity, "friend" can also view the digital identity file of her date in a few years or quarters, which lists which digital communities their dream target belongs to, the activities they participate in, the careers and artists they support, the PFP NFT they own, and any token based products they own.

Today, all these data are recorded on the blockchain. People's cryptocurrency wallets have revealed a lot of information about who they are and what they do - as long as you know their wallet address. This is exactly the problem that the digital identity platform is trying to solve, how to display all the activities of a person on the chain in a simple way.

A truly unique cryptocurrency consumer product

The digital identity platform is one of the most exciting areas of consumer products in cryptocurrency for the following reasons:

  1. They directly take advantage of the core innovation of blockchain technology (verifiable and unchangeable records of who did what).

  2. Having the identity layer is one of the most strategic positions in the Internet - as shown by the decade long struggle between Apple, Facebook and Google to become the king of one click login to Web2. (Meta/Facebook took the lead in the early days, but now it has lost to Apple. Apple entered later, but it has done better than others.)

  3. Digital identity is a rare example of cryptocurrency consumption category. It is making use of blockchain to make some real innovations.

In the cryptocurrency community, there have been many articles about the potential of this new product. This is not a question of whether it will happen, but who will establish it.

Many people think that wallet providers (such as Metamask, Phantom, Coinbase Wallet) are the de facto leaders in this field, butI don't believe wallet will eventually build our decentralized digital identity

Why?Because just like bank accounts, people will maintain different wallets for different purposes, and because more and more mainstream users do not want to keep their wallets or consciously handle them when entering cryptocurrencies

Winners are either fun, useful, or both

When we look at how the dominant Web2 identity provider appears, it is obvious:

  • Google: The extensive role and convenience of search and e-mail make them central hubs.

  • Facebook/Instagram: It is easy to connect with friends online and share photos.

  • AppleID: Can sign in to multiple devices using your Apple ID.

  • LinkedInThe unique role of replacing offline resumes with digital links.

In short, whoever can create a valuable reason to aggregate and update user data - either to give people a useful tool or to create entertainment value - can dominate the track of blockchain identity.

A crowded field: identity power game

A large number of start-ups are vying to create a Web3 digital identity platform.

To make digital identity files flourish, users must have the motivation to update and add content

Successful platforms will give people a good reason to use them, whether it comes from network effects (others have them, and I also need them), real world use cases (my information can help me find a job or a date), or economic incentives (if someone finds my information attractive, they will pay to contact me).

After that, more practical influences come into play - for example, which platform has the most extensive distribution, who has the most complete view of the activities on the chain, who has the ability to link advertising and marketing expenses with archives, who has the most eye-catching real world use cases, who has the largest leading edge, and who does not occupy the Web3 identity market will have the greatest loss

Portfolio aggregators like Zerion or Zapper (in a multi chain world) or CeFi financial technology companies like Coinbase or LemonCash (in an interoperable cross chain world) will become my first choice.

Here are some examples of who can achieve better success in this field (from the perspective of human emotional needs):

1. CeFi Financial Technology Company (Coinbase, LemonCash): These enterprises have provided major experience for new users to purchase cryptocurrency, which can be said to be the first killer product of the blockchain. Coinbase has started the work of digital identity since 2018 or earlier, and many CeFi financial technology companies have simultaneously implemented the import and export of French currency and self custody wallet.

Emotional connection: the need to own and accumulate wealth.

2. Portfolio aggregator (Zapper, Zerion): They can fully understand your shareholding in multiple wallets, and have already had a very high degree of participation.

Emotional linkage: When the tokens held rise or fall, dopamine will play a role. The demand for financial safety and security can be seen in one place where all tokens held rise.

3. Domain name service (ENS, Unstop Domains)These are already public data that people use to share their encrypted affiliations.

Emotional connection: the need for completion and establishment.

4. Identity, social and data protocols (Lit, Ceramic, Lens, Arabic, CyberConnect): These open source protocols are mainly middleware integrated into consumer identity files, but if any of them decide to enter the application layer (Lens is already experimenting with configuration files), they may become a huge competitor.

Emotional connection: the need for safety.

5. Wallet (Metamask, Phantom): Many dAPPs require an existing digital identity layer that enables you to log in. Many wallets also provide privacy features (public and private keys) to protect their content.

Emotional connection: the need for self possession.

6. Web2 social identity (Google, Facebook/Instagram, LinkedIn): If a new digital identity standard takes off around cryptocurrency, they will lose the most.

Emotional connection: the need for completion, influence and connection.

7. Market platform (Magic Eden, OpenSea): They already have the main data concerning any business transactions held by NFT. It can be said that NFT can share our identity information better than alternative tokens.

Emotional connection: the need for self-expression and creativity, and the need for stimulation and connection.

8. Proof protocol (POAP, ProjectGalaxy): An independent source of information about non-financial encryption activities - such as participating in activities or community members - has created a new identity layer, which does not exist in Web2.

Emotional connection: the need for a sense of belonging, connection and influence, and the need for achievement and construction.

9. Web3 social network (DeSo, Bitclout, Entre): The existing social data have not yet generated great entertainment value or gained great traction.

Emotional connection: the need for self-expression and creativity, the need for influence and connection.

10. CollabLand, Mintgate: They have been used as token based or NFT community based authentication tools.

Emotional connection: the need for belonging, connection and influence.

11. Ticketing platform (Afterparty, Tokenproof): Tokenproof is actually a proof of ownership platform, but we have seen success in ticketing use cases. These platforms have another form of non-financial cryptocurrency data that has not been captured by other platforms.

Emotional connection: the need for belonging, connection and influence.

12. Advertising supporting platform (Layer3, Brave): They have strong user stickiness and are ready to share data with external parties.

Emotional connection: the need to control your data and ensure its security.

13. Information transmission (Dialect, XMTP): How do we contact others.

Emotional connection: the need for connection and belonging.

Control our identity

A reasonable question is: If all activities on the chain have unchangeable records, why do users need to update or manage their identity data? Doesn't this happen automatically?

The answer is privacy.

People will not be forced to share what they do online; Digital identity simply means that everything you do online (and what you want to share) is verifiable.

Therefore, it can ensure that friends using the dating software Bumble will not be cheated. She can believe that her date is the person written on the software, and at the same time, she can leave enough mystery to keep interesting.

Former title: The Future of Crypto Native Consumer Products Part 4: Digital Identities

Written by: Mercedes Bent, partner of Lightspeed

Compiled by: Deep Tide TechFlow

Source: DeFi Way