Here is why you should care about your On-Chain identity

Vikram Aditya, Sep 26, 2022

What if we told you, the way we log into any website in the world is about to change!? What if we told you how you collaborate at the global scale and with your peers is permanently about to change? What if we told you that you may never have to make a case for yourself in front of an interviewing panel while switching roles? What if we told you, you could apply for a job and get an offer all in 2 seconds not that distant in future?

The world of Web3.0 maybe bubbling with a lot of not well-founded projects but some of the best innovations are happening right under our noses. One of them that you should care about at the very least is the idea of On-chain identity. As blockchain technology evolves, so does the potential for SSO (single sign-on). On-chain identity allows users to sign into their favourite websites and applications with their blockchain addresses.In this blog post, we dive deeper into the concept of on-chain identity and why the smartest folks say that you should care about it. We will also explore how it can be used to create a more secure and decentralized internet and towards the end discuss the potential implications of this technology on the way you access anything and everything.

What is On-Chain identity?

We will use the phrase on-chain identity a zillion times in the article. It’s important that we explain what that is. On-chain implies the identity sits on-chain. Now we know anything on blockchain has a relatively higher trust. Most likely what you see is what the fact is. Certificates carried a lot of weight traditionally. Even today, the best doctors in the world, the best hospitals, the best teachers all proudly hand their proof of authenticity or certificate in the backdrop. This carries on everywhere.

However, If you have ever drafted a resume or read one, you will find yourself questioning on how many pointers out of whatever you’re reading is actually true! If you have dived deeper into any Web3 community, the problem gets worse. Not only does the problem with our resumes carry forward but now most people sit with pseudonymous profiles making it even tougher to identify who is who. Trust and reliability go down the drain if communities of people will have no way of identifying who the real contributors are. On-chain profile fixes that.

Simply put, the idea behind on-chain profile and the larger umbrella individual on-chain reputation is that every contribution, every action, all your efforts, your collaborations and your every single interaction sits in your wallet. It sounds a little weird because wallets have been traditionally associated with money or assets. However, think of it this way. Just like when you purchase an NFT, it sits on your wallet, what’s effectively happening is that your wallet is authenticating the transaction and the NFT is an electronic record that sits on the blockchain with your wallet as the destination. Everyone can see that you own it and how it came to you.

Now if you start recording every interaction in a similar way, people will be able to see that you put in three hours of work behind designing that logo, or that you actually went to an online repository and finished this course by devoting time into it which resulted in the certificate getting issued to your wallet. Because the action of signing the transaction happens over blockchain, there is a guarantee that the data is not fake and that you actually are what your profile says you are.

Is it possible to record every action, every interaction on the wallet? Not as yet in entirety but many things can be recorded.

Identity Management: Current Scenario

Identity management is the process of verifying and managing the identities of individuals or groups of people. This can include things like name, address, social security number, and driver’s license number. Let's say that you want to sign up for a new website. In order to do so, you need to create an account with your email address and password. The website then stores this information in its database.

Now, let's say that you want to sign up for another website. But this time, you don't want to use your email address. You'd rather use your Facebook login or Google account because it's easier and you don't have to remember another password. So, you click the "Login with Facebook" or "Login with Google" button.

But what happens next?

Let's say that you logged into Instagram with your Facebook profile. The activities you did on Facebook (liking pages, sharing posts) are now shared with Instagram. This enables Instagram to target ads, accounts to follow, and content to show you based on your Facebook activity. In other words, by logging in with your Facebook account, you've given Instagram access to your personal data.

While this process is convenient, it's not very secure. That's because you're relying on these third-party providers to keep your information safe. And if they get hacked, so do you. We've seen this happen time and time again with companies like Equifax, Yahoo!, and Marriott.

Challenges with the Current Identity Management System The current system of identity management has several challenges. First, it's centralized. This means that there is a single point of failure. If a company like Facebook or Google gets hacked, your information is at risk.

Second, the current system is siloed. This means that your information is spread out across different platforms and databases. This makes it difficult to keep track of everything and increases the chances of something getting lost in the shuffle.

Third, the current system is opaque. This means that you don't really know what's going on behind the scenes. You don't know how your information is being used or shared. And you have no way of controlling it.

So, what can be done to solve these challenges?

The solution is to move to a decentralized identity management system. This is where on-chain identity comes into play.

How is on-chain identity accessed?

Of course you know how you can access your google or facebook account. What about On-Chain identity? This is where wallets come into the picture. We have talked about different types of wallets in our previous articles and all of them can be used to store your on-chain activities and credentials.

Interestingly, some of the most aspirational startups, many of whom are our close friends and co-building with us today are working on on-chain reputation itself. These start-ups when mature will define how communication, authenticity and access in the future will happen. We talk more about how we can help you as you fiddle around with the thought of how you can get started with your on-chain profile towards the end of this article.

What can this On-Chain identity mean for you?

Now that we know what on-chain identity is, let's take a look at how it works.

When you want to sign up for a new website or application, you'll start seeing in the option like Sign-In via your wallet or your blockchain address very soon Once you've authenticate yourself which is simply by entering the password associated with your wallet, the website will send a request to the blockchain ledger.This request will then be verified by the network of computers that make up the blockchain (known as nodes). If everything checks out, then you'll be logged into the website or application.

There are several benefits of on-chain identity.

First, it's decentralized. This means that there is no single point of failure. If one website or application gets hacked, your information is safe because it's not stored in a central location. Also, no one owns your data. It’s like the best of no one owning the data and the interactions still getting personalised. Some of these pointers will send established corporations into restless nights of sleep.

Second, it's interoperable. At least most of our friends have that as an operating principle. This means that your blockchain address can be used to sign in to any number of websites or applications. You don't need to create a separate account for each one. This is massive. Imagine optimising your facebook experience today (should you choose to) based on what you have done on LinkedIn. Imagine having Apple Movie recommendations optimised based on what you did on Netflix. That’s just the beginning.

Third, it's transparent. This means that you know exactly what's going on behind the scenes. And since your information is stored on the blockchain ledger, you have complete control over who has access to it and how it's used. It’s likely that one of the existing wallets will roll up multiple wallets and Profiles into one Decentralized Identifier. Think of it like multiple personalities that you can bucket and make available to the world on a case by case basis. Which means you can have silos of your profile and sign in via a profile that doesn’t have things which you don’t want shared. Imagine you bring your activity, contributions, relationships, and inventory from across chains with them wherever they go. Also, since it’s all transparent, some of the most ambitious projects today are talking of getting third party providers who will use the authentication to optimise your experience just read the data and not share any data with them. Will it happen overnight? No. But it sure is a better alternative and good things find their way to the top sooner or later.

Fourth, it's secure. This means that your information is encrypted and stored on the blockchain. So, even if a website or application is hacked, your information will be safe because it's not accessible to anyone except you.

A few more practical examples

Future of Access

Thinking what you do with the data you have is pretty outdated. Web 3.0 wallets allow for different flexibility which we briefly talked about above too. When you log into a normal website, that website knows what I’ve done on that website before. When you log into Amazon, for example, Amazon knows what you’ve bought on Amazon, which credit cards you use to buy things on Amazon, and the address to which you want Amazon to send the things you buy. It doesn’t know about what you own elsewhere. It can only really design experiences for you based on your Amazon activity. When you sign in with your crypto wallet, though, the site can know whatever you hold in all your wallets and can give you permissions and experiences unmatched in the world of Web 2.0.

Playground is a new project that looks incredibly simple but points to one of the ways that wallet-first interfaces might work. In the playground, your experience on the website is as dynamic as it can get depending on what your wallet recorded a second before you clicked on the button. In this case, it looks at all the NFTs you hold in your wallet and gives you access to a chat where only people who hold NFTs from the same family can hang out. Someone could extrapolate it to add you to communities where you belong based on your credentials.

Future of Contribution

Today, most of the full-time workers and freelancers remain unhappy because they are either not working on what they want or they are not getting paid optimally. At the same time, a lot of companies struggle finding the people they need even with brilliant pay structures. This is precisely the reason so many businesses exist to map contributors to employees. With an on-chain profile, people will discover and can get directed to projects, DAOs, or protocols that are actively looking to attract and onboard more contributors through grants, RFPs (Request for Proposal), and bounties.

By submitting Contributions in these new gigs that you do, the on-chain profiles you carry will be further enriched and legitimised. Given the direction in which Web 3.0 is evolving, is it possible tomorrow that routing is also run by code. Also another way to think about this is why go through the pain of matching when a smart contract jumps in and tells a DAO, hey Paul is the best match and Paul says he is available to work. His charges are 3000$ per day and if you are open to having him lead this, approve this proposal.

Future of Hiring

What do we do when we interview someone? We try our best to screen them in a way so that we know they can perform. What do we have as a proof? Their resume or their referrals which as they know doesn't work many times. With On-chain reputation, all the judgement becomes secondary because if they earned a badge for achieving a milestone, there is no questioning of authenticity. On-chain profile in case of an interview replaces a resume with a record of their proof of work or in simple language their ability to get the task done. With a credible on-chain profile based evaluation, you are less likely to make a wrong hire. Expand this to any industry you think where validation is a problem and you have a solution for example credit allocation.

Another use case-Background validation.

In the current system, a lot of time and resources are wasted in KYC (know your customer) processes. This is because each company has its own KYC process, and there's no way to share this information between companies. With on-chain identity, this information can be stored on the blockchain and shared between companies.This would save a lot of time and resources because companies wouldn't need to waste time verifying the identity of their customers. They could simply look up the information on the blockchain.

Further, on-chain reputation has a lot of practical applications in DAOs. The biggest headache for any DAO today is effective governance. Some brilliant moles are in place but they tend to have their own flaws every now and then. Governance is the process of making decisions democratically within a decentralized organization. It is important in DAO because it ensures that the organization is run efficiently and effectively. By using blockchain technology, decision-making can be decentralized, which eliminates the need for a central authority.

With effective and seamlessly merged on-chain identity, we can move towards a one-person-one-vote model within DAOs that increases a protocol's resistance toward Sybil attacks. A Sybil attack is a type of cyberattack that involves creating multiple fake identities to gain more control over a system.

All that glitters is not Gold.Is privacy and transparency still a major concern?

Identities in Web3 can be as showcased as private or as public as you want them to be. There is a lack of centralization and the ability to have all data viewable on the blockchain enables individuals to be as public and as private compared to their Web2 self.

This means that people can create verified unique identities for themselves that can be completely disjoint from one another while still on-chain. We talked about one-person one vote above and this is where the same may collapse totally.

For example, an individual can have multiple accounts:

A public account that is used to interact with the community and is known by everyone A private account that is only known to close friends and family An anonymous account that is only known by a select few The ability for users to be in control of their data and privacy gives them the power to choose how much they want to share. It also enables them to create different profiles for different purposes. This could be a blessing in disguise for a fraudster.

For example, a user can have a profile for work, one for personal use, and one for interacting with the community. This allows them to keep their work-life separate from their personal life.

Does lack of interoperability and standards matter?

There is a lack of interoperability and standards when it comes to on-chain identity. This means that there is no one way to store or manage data. Each protocol has its own way of doing things, which can make it difficult to use multiple protocols at the same time.

For example, let's say on a DAO, a user's identity is stored on the Ethereum blockchain. This means that if a user wants to use another protocol that uses a different blockchain, they would need to create a new identity.

This can be seen as a positive or negative depending on how you look at it. On one hand, it gives users the flexibility to choose which protocol they want to use and how they want to manage their data. On the other hand, it can be seen as a hindrance because it makes it difficult to use multiple protocols at the same time.

In the future, we may see more interoperability between protocols as standards are developed. Until then, users will need to decide for themselves which protocols they want to use and how they want to manage their data.

Out of all the things, why are we shouting about On-Chain reputation at DAOLens? Today if you were to start thinking about how to build your on-chain profile, some of the most advanced work is happening in DAOs. DAOs let you do your gig and reward something as a proof that you did the gig. There are various nomenclatures for what these rewards might be called. The most common name is a Non-Transferrable NFT. We will talk more about it later but for now what you need to understand is that there is a way to get credibility built by contributing to DAOs and getting rewarded.

At DaoLens since we act as the gateway of entry to DAOs. Based on conversations with about 100 or so odd DAOs, for most newcomers, on-chain reputation starts building on the day they join. We are also involved in contribution activation and project management for DAO admins which again needs information on what a contributor may have done in the past. We have been in talks of closely collaborating with on-chain profile providers. If you’re a DAO admin looking to have the idea of on-chain reputation built into your DAO in a way that contributor management is seamless, we should talk. Feel free to reach out to us at vikram@daolens.com