On-chain identity

Introduction
On-chain identity is the digital representation of an individual on the blockchain. The blockchain technology allows individuals to have a digital, decentralized identity without relying on a single identity provider. Being on-chain means that each Web3 user will have a unique profile backed by evidence that’s immutable and permanent due to the blockchain. It’s like your Twitter or LinkedIn profile but supported by true information on your achievements, activities, or interests.
Why on-chain identity even matters?
Benefits of on-chain identity for users are:
- Total, censor-proof control over their identities.
- Portability. Individuals will be able to carry their identities with themselves and bring them to various platforms through cyberspace.
- Security. Decentralized identity is enabled by decentralized identifiers, a type of unique identifiers which is protected by a private key. The key being known only to the identity owner makes hacking very hard if not impossible.
- Convenience. Having only one digital identity will make it easy for individuals to use different chains and wallets. It will lead to better user experience and will hopefully enable a wider adoption of blockchain technology.
For Web3 in general, one of the reasons why on-chain identity matters is because it will make professional identities more informative. Putting “Backend software engineer” gives much less information about you than showing that you worked on a specific project, say, building a block explorer for the Phantom blockchain. This will be especially valuable to DAOs delegating their tasks to individuals whose skills can be verified easily. The experience of Web2 companies makes the issue important. It is estimated recruiting staff tends to spend about 50 (!) days hiring a technical candidate. That’s because it’s too hard to verify the professional identity of the candidate via CVs, cover letters or LinkedIn profiles.
The creator economy would also benefit from the use of on-chain identity. A musician or NFT artist can look at on-chain data measuring the performance of their fans. Digital identity displaying all on-chain activities of users across all platforms will reveal true fans of an artist.
Other use cases of on-chain identity could be more direct marketing targeted at individual users, and easier KYC process.
Challenges
There are some obstacles to the universal expansion of decentralized identity. The first one is related to the limited adoption of blockchain and crypto industry in general. This makes on-chain identity relevant only to certain sections of population.
Another challenge to transporting identities on-chain is security. Crypto wallets today don’t provide enough security measures. Almost every week we hear of a DeFi protocol being hacked and funds getting depleted. Crypto should be more secure than it’s now lest identity hacking be a normal thing in the future.
Soulbound Tokens (SBT)
SBT is an idea proposed first in a paper co-authored by Vitalik Buterin in 2022 May. They are digital identity tokens representing a person on the blockchain. Think of them as NFTs which cannot be transferred to other accounts though. Since they cannot be sent, SBT cannot be bought or sold which means that they cannot have a market value. They are permanently bound to the person’s “soul”.
As “soul” is a wallet holding or issuing personal data, it is possible for an individual to own multiple souls representing various facets of his life. You can have an “education Soul” issued by the university you graduated from. “Credentials soul” would be represented by an SBT associated with the professional aspect of the individual’s life containing information on their achievements and work history. In this case, your employer would be a Soul issuing SBT, and you would be a Soul holding that SBT.
Builders in the space of on-chain identity
There are many protocols building the future of on-chain identity. It is a broad field, and many builders work on different problems. There are protocols which aggregate multiple profiles of users across separate platforms. Then, there are social media platforms which take users’ addresses as their identities. Some are working on developing an on-chain reputation system. Below is a rough classification of the protocols / companies / projects.
Aggregators
Web3, as it stands, is highly fragmented today. Users employ multiple wallets and chains to traverse through Web3. The segregated data on different accounts can be a problem because taking a single data source into consideration can misrepresent the user. Several projects try to solve the problem by aggregating the user’s data through various chains, platforms or wallets and creating a single digital identity of that user.
Sismo is an attestation protocol aggregating data from a user’s web2 and web3 accounts to generate Data Gems, verifiable statements. By importing their personal accounts’ information into Sismo’s Data Vault users create their digital identity and keep the right to reveal the part of their data they wish to show. Once the data is verified, it’s stored in on-chain contracts or off-chain databases, after which the user can transport his data to any app.
Gitcoin Passport is a self-sovereign data protocol which allows users to create their digital passports using Verifiable Credentials specifications without revealing personally identifiable information.
Scoring
One of the benefits of on-chain identity to Web3 is that it allows to compute credit worthiness of a user based on his / her on-chain transaction data. By making calculations though multiple wallets of the user it’s possible to measure his credit score. One of the most prominent players in the space is DegenBox which launched Beacon, an Ethereum soulbound token. By analyzing your crypto skills, it shows how good a DeFi degen you are!
Spectral is another protocol building credit scoring system for DeFi. What it does is to analyze on-chain transactions data of users, such as payment history liquidation history, how much amount they owed and repaid. Then, it generates a MACRO (multi-asset credit risk oracle) score, a personalized Web3 score.
Social
These protocols enable social media to be permissionless and open. We are used to the idea of social media being controlled by several big players which own users’ data. This makes it restricted for us to choose the type of content we’d like to see on our feed. On-chain identity social protocols will change this.
The most popular player as time of writing is Lens Protocol, a decentralized social graph built on Polygon. You can create (mint) a profile, post, comment, follow, mirror (“share” in traditional social media platforms) — everything you do on a social media platform.
CyberConnect is not only a user-owned decentralized social graph, but it also allows users to create their own social graphs based on it. There are already protocols built on top of CyberConnect. For example, Link3 is a Web3 native social platform where you can find Web3 related upcoming events.
Single sign-on (SSO)
Aside from its effect on the financial system, one of the least mentioned but important benefits of the crypto is that it will ditch, and is ditching right now as I am writing these lines, the currently dominant but unnecessary login / password sign-in authentiation scheme. Protocols in this space build the tools allowing users to log in the platforms or systems with a single ID. Advantages of the SSO authentification include decreasing “password fatigue” (the feeling which netizens experience when they are required to remember various username and password combinations used to log in different websites) and improved network security.
The first project coming to mind in SSO space is ENS, Ethereum Name Service, a decentralized and open naming service for the Ethereum blockchain. It links the name to the “machine-readable identifiers”, e.g. wallet addresses.
Conclusion
Though not known even to most experienced crypto users, on-chain identity is one of the most important and least understood issues. The issue matters because it gives the individual the censor-proof control over his / her identity. Furthermore, digital identity is a) portable in that the user can bring his identity to different platforms and blockchains, and b) convenient in that possessing only one on-chain identity will make it easy to use different wallets and platforms. The main benefit of it, in my opinion, is secutity that digital identity provides. Since it is secured by a private key, hacking on-chain identity is nearly impossible unless the individual himself reveals their personal information.
To say that protocols / projects / startups building in this field shape the future of the Internet is not an exaggeration. These builders offer many services and tools whose benefits include but are not limited to:
- Talent discovery fo web3. By displaying their experience, skills and reputation, users make themselves known to web3-native economic actors, such as DAOs and DeFi protocols.
- Aggregating all information about a user in one place will create a single digital identity of the user. This is a question of vital importance in the highly fragmented space of web3 as it stands now.
- Creating the credit worthiness of a user is important for DeFi.