A Comprehensive Understanding of the Development History, Current Status, and Future Opportunities of Decentralized Identity Recognition

This article was published on July 4, 2019, by ChainNews, authored by Imran Khan and translated by Zhan Juan.

As cryptocurrencies play an increasingly critical role in the global market, traditional identity verification methods have now become a bottleneck as we enter the crypto world.

Traditional identity verification has always been a tool for citizens to enter the current economic system and confirm their contributions to society. With the rise of the internet, economic and data activities have shifted to the online world and mainstream platforms. Today, large oligopolies use monopolized data and identities to better understand what services humanity may or may not need in the future.

Can humanity trust monopolistic oligopolies to believe that the data they voluntarily provide is protected from malicious actions?

The concept of self-sovereign identity is now more compelling, which posits that an individual can protect their identity and data from infringement by others while being able to enter the economic system. An example of this economic system is open finance. The premise of open finance is that anyone can enter an open network from any jurisdiction and have the ability to participate.

In fact, millions of people are waiting for opportunities but cannot truly participate. Why is that? Before millions can flock in and benefit from this open network, the identity verification issue must be resolved.

The History and Bottlenecks of Identity Verification

The cognitive revolution not only facilitated human collaboration but also triggered the birth of rationalism. Early human tribes conveyed trust through jewelry and tattoos. As tribes developed, the ability to trust grew, and enemies could infiltrate villages by creating counterfeit jewelry. During the Roman Empire, with economic development, the advancement of written and recording technologies grew exponentially, leading people to develop and create written archival systems to identify and track property ownership, businesses, or debts.

As the economy developed, the population and the ability to expand trust also grew. By the late 19th century, governments had begun issuing photo identification and tracking documents for births, education, ownership, or businesses.

Parallel to this identification system, banks and merchants created manual registries of personal lending activities, which were shared in towns as a way to track lending.

As the lists grew, they became a mandatory function of credit unions. This new credit system could track debts, payment histories, credit histories, and credit usage. The combination of photo identity, documentation, and credit created the modern identity system, which continues to this day.

The credit system helps governments identify citizens, their contributions, and how they integrate into society. In the foreseeable future, businesses will have the ability to trust and engage in economic activities. Ultimately, it allows citizens to participate in economic activities and integrate into society. However, with the invention of the internet, modern identity verification systems began to reach a historical turning point.

The Birth of "Heterogeneous Identity"

Similar to the cognitive revolution, the internet has lowered the cost of collaboration and incentivized new user behaviors. People no longer rely on outdated systems but seek newer, faster ways to conduct business—whether it’s finding a new home, searching for a shared ride, or connecting through social networks or remote work.

These platforms have reduced collaboration costs and formed massive network effects. This has enabled large platforms like Google, Uber, Facebook, and Microsoft to become major data aggregators while gaining more insights into user information.

People's reliance on these large platforms has led to the dominance of digital identities. This shift marks the birth of "heterogeneous identity," which is an identity that can be segmented into specific user behaviors.

I categorize identity into three parts: traditional identity (government), trust network authentication (Google and Facebook), and identity management solutions (Microsoft and Okta). I will introduce some new fragmented identities, such as web-based authentication and identity management solutions.

Web-Based Authentication

We can classify Facebook, Twitter, Google, and Snapchat as major examples of data exchange service platforms. When we use these platforms for free, they collect data about our usage, online behavior, and metadata to push targeted ads and services. These platforms have aggregated enough data, now referred to as authentication agents.

Authentication allows applications to easily track real users while providing data access in return. Thus, in this regard, identity has become not only a means of authenticating a person but also a means of collecting user behavior data. This data is useful in the hands of users, but dangerous if it falls into the hands of platforms. As we have seen, our online identities can be used against us by entities like Cambridge Analytica and Facebook.

Identity Management Solutions

This refers to how enterprises manage identity solutions within a closed IT network infrastructure. Since the advent of Windows NT, administrators have been able to use directory services to store identity and login information. Behind directory services is the LDAP protocol, an open protocol used by most directory applications, such as Microsoft's Active Directory. This allows companies of any size to seamlessly synchronize user data and deploy applications.

Cloud-based identity and a whole suite of cloud products make it easier for companies of any size to manage remote workers, but they also enable hackers to deploy complex phishing attacks that compromise work credentials. As we saw in the recent Equifax hack, valuable information can be compromised, endangering people's lives.

Opportunities in Heterogeneous Identity 2.0

As we can see, in the computing era, we are reaching a boiling point in identity verification. We have expanded the number of internet users from 1 billion in 2005 to 3.2 billion in 2019. To illustrate the severity of this issue, a recent cybersecurity report from Shape Security shows that 80% to 90% of users logging into retail websites are using stolen data from hackers.

Entrusting personal data to large companies is extremely dangerous for both businesses and users. At the same time, the invention of the Satoshi consensus algorithm has spurred the growth of the cryptocurrency economy, leading to a "Cambrian explosion" of use cases from decentralized finance to decentralized identity verification. As the famous venture capitalist Josh Wolfe said, "We must follow the natural order of processes." If we follow the natural order of processes, we will naturally generate cryptographic identity solutions.

The problem with blockchain-based identity verification systems today is that they address identity issues from a singular perspective. This system may be suitable for specific use cases, such as retrieving a beer from a vending machine, but it cannot address the ability to utilize the economic system, such as using open finance or gaming. For example, borrowing money from Party A requires someone to collateralize the loan up to 150%.

Now imagine if an identity-based solution could track how quickly a person repays a loan over time, underwriters could use this data at a lower cost to underwrite loans for borrowers. Therefore, I believe entrepreneurs should not solve identity issues for the world we live in today but for the world we will live in in the future. As economic systems evolve, identity will also evolve, and projects should focus on future use cases.

Blockchain-Based Identity

Decentralized identity verification will be one of the most important issues in the future, with hundreds of companies working to solve it: whether from the enterprise side like Microsoft, IBM, RSA, or from the cryptocurrency side like Blockstack, Coinbase, Uport. Ultimately, we will see several platforms emerge victorious, as we will live in a more fragmented world where our identities will be further segmented based on scenario use cases.

We need to rethink our identity; identity no longer identifies who we are but recognizes our contributions to protocols or economies. This can encourage good behavior while reducing malicious actions and may create an economy where crowds are not identified but may equally contribute to the overall economy. This could be the world we live in in the future, but to achieve this, we need to understand the types of feasible solutions and quantify the impact.

Decentralized Network Authentication

Decentralized network authentication allows users to verify other applications or services without having to relinquish personal information. Interestingly, Coinbase recently acquired Distributed Systems, which is an identity solution built for the Clear Protocol.

Currently, most identity solutions are quite similar: a Chrome browser extension must be downloaded, a wallet created, funds provided to the wallet, and transactions signed—this is one of the biggest barriers. Coinbase has grown to have over 20 million KYC users, with rich identity data that can be used for new industries like decentralized finance.

Coinbase plans to launch a Facebook-like SDK that allows other DApps and services to integrate seamlessly. This can reduce friction and allow users to switch seamlessly between DApps and services.

From a developer's perspective, this operation makes it easier to acquire and retain users while focusing on growth. This will shift identity from authenticating personal information to authenticating personal information and money, creating new applications and services that will establish new business models considering cryptocurrencies.

Ecosystem Approach

Blockstack envisions a world where users only need to authenticate once without having to re-authenticate while browsing the internet.

They have four components that enable users to authenticate seamlessly and protect their data:

• The first component is the Stacks blockchain, which provides global consensus for the network; Stacks tokens allow users to purchase usernames, execute smart contract functions, or connect to storage.
• The second is the Gaia storage system, which allows you to store all data in encrypted private data storage spaces that can be hosted on your hard drive or cloud storage providers.
• The third component is the protocol itself, which verifies the identities owned by users and the locations of Gaia storage.
• The final component allows developers to easily integrate the Blockstack SDK into their core applications for seamless login functionality.

The Blockstack team is taking a controlled approach, evolving from considering the blockchain itself to focusing on the end-user experience regarding identity.

Protocol-Based

Microsoft has taken an open standard approach by introducing the "Identity Overlay Network (ION)."

ION is an open protocol built on the Bitcoin blockchain, and the ION network is a communication and batching layer that manages and anchors decentralized identifiers (DIDs). DIDs are immutable documents that represent a unique ID that can store personal information about users.

Microsoft chose to build a second-layer solution that maximizes throughput and avoids the use of consensus algorithms. The result is that it enables developers to build scalable solutions while providing a universal deterministic state solution.

Companies like CloudFlare can seamlessly run an ION node and anchor data to the Bitcoin blockchain, charging nominal fees to end-users. Microsoft is confident that by establishing an open standard, it can attract a variety of developers while focusing on interoperability with traditional networks.

Ria Bhutoria from Circle Research has provided a detailed introduction to Microsoft's ION, which is worth reading seriously.

Other Exciting Solutions

Formatic is taking a developer-centric approach by providing developer tools that enable DApps to seamlessly onboard new users by allowing them to log in and use DApps with just their traditional phone numbers. This approach reduces friction and allows newly activated users to quickly enter DApps while protecting personal information when switching between different applications and services. So far, they have integrated with OpenSea, Set Protocol, Zerion, and more.

Uport also has an interesting solution built on the Ethereum protocol, offering a self-sovereign wallet and a single sign-on service DApp that allows seamless integration from Web 2.0 and Web 3.0 applications while providing the ability to issue and reuse credentials. Uport is available on the iOS and Google Play stores and can be used with Meleonport, Gnosis, Status, and others.

Humanity Dao is an identity solution based on decentralized autonomous organizations. It is the first identity verification system that incorporates governance and universal basic income into the verification process, and using a user-managed identity system may have an interesting value proposition. Humanity Dao is in the early stages of development, but I am optimistic about the system's founders.

Conclusion

As technology and society advance, our ability to recognize and authenticate identities is also improving. Data is the most valuable asset we possess. We can control our data and make informed decisions that benefit our future.

The computing era has presented us with an opportunity where applications and services help improve society, but it has also left us with open spaces for improvement. We are transitioning from the computing era to the era of machine intelligence, making blockchain-based identity solutions necessary.

I believe that identity-based solutions will evolve to be more refined, focusing on economic use cases in areas such as open finance, gaming, or trading markets.