DID: The Desire for Credit and Permissionless
The DID caused by on-chain data will promote the on-chain publicization of personal identity. So, can privacy protection still be achieved?Author: R3PO
In the article titled Connecting the Dots: Decentralized Links Built on DID and On-Chain Data released last week, R3PO pointed out that on-chain data is a "sinking" data infrastructure that needs to be integrated with DID as a functional suite into products like SocialFi, GameFi, and wallets, with a focus on analyzing the significant implications of domain names, represented by ENS, for individuals in the Web 3.0 era.
In R3PO's view, there is still a lack of observation on the application direction of on-chain data. The breakthrough of blockchain compared to traditional methods lies in the comprehensive openness of data, but this does not mean equal "data access rights." Limited by funds and skills, data-related products have taken a path that excludes most users in their commercialization journey, creating a new pattern of inequality.
This de facto inequality can lead to a minority's evaluation and control over the majority. At the same time, personal data is scattered across different public chains, DApps, and products, making it impossible for individuals to truly manage their data. With addresses and domain names being constantly variable, personal identities in the on-chain world are becoming increasingly fluid and fragmented.
From the perspective of truly empowering individuals, R3PO believes that it is essential to unify data sources and personal identities, returning data ownership and access rights to users, thereby creating a decentralized social system based on credit.
The credit system is the cornerstone of a frictionless society, providing everyone with the possibility of equal dignity and happiness.
Web 3 Personal Identity: Certifying Asset Ownership
Personal identity is a prerequisite for the popularization of future Web 3 products, and the accumulation of data provides a decentralized verification pathway. Taking Bitcoin as an example, its data structure essentially derives from a variant of a Merkle tree, which combines hash pointers with binary trees. The data itself is the ledger, and the ledger itself is the record of personal activities on the chain, from the creation of the Genesis block to the hash collisions for accounting rights among miners, and then to transaction information (Tx) between individuals. This data constitutes the blockchain itself.
However, R3PO believes that this data stacking, while bringing decentralization, also introduces another persistent issue—identity disconnection anxiety. The account system based on public and private keys actually lacks an effective way to bind individuals to the chain. Once the mnemonic phrase or private key is lost, how to prove you are you, and how to prove your assets are your assets will forever remain unachievable.
To solve the issue of identity disconnection, wallet solutions and on-chain data analysis attempt to block from both ends, and after eliminating all impossible answers, there is only one truth.
Specifically, wallet solutions provide a container for identity. With the help of MPC (Multi-Party Computation) and account abstraction, social recovery connects personal identities with relationships to others; while on-chain data analysis directly infers the relationship between on-chain addresses and social entities through AI and behavioral analysis. For example, after the FTX hacking incident, the hacker's identity could not be determined, but their behavior was tracked in real-time by tools like Nansen.
However, the problem is not completely solved. Wallet solutions cannot address the interaction issues between individuals, especially in the realm of strangers or public interactions. More personal data needs to be accumulated through DID, SBT, and SocialFi to truly serve as a data endorsement for identity.
Just like Twitter's blue verification mechanism, centralized review is necessary to ensure that personal identities are not misused. In a decentralized society, only a sufficient amount of data can achieve the effect of rights confirmation.
The biggest problem with on-chain data analysis is that it is relatively effective in tracking addresses of whales and institutions but cannot identify the numerous individual retail investors. At most, it can infer account behavior through data and label them. For instance, OKlink collects 200 million entity labels, while Nansen gathers mainstream CEX cold wallets in the crypto space.
But labels are not identities. Multi-dimensional labels can constitute a personal body, while personal identity is a unique "on-chain asset" and social asset carrier. In SBT theory, its non-tradability is also based on "uniqueness." Individuals cannot sell themselves but can only sell various assets such as labor and time.
Image description: Layering of blockchain data
Image source: R3PO R3PO believes that, as shown in the image above, in the data hierarchy of the blockchain, the lowest layer of data that truly marks personal identity is structured, stored, and circulated on public chains, open and equal to anyone. Alice's address can be tracked in real-time by Bob, and Bob cannot trace back without informing Alice of his personal address.
However, starting from the browser layer, personal data faces unequal storage and access, leading to personal identities being exploited by others, while individuals cannot share their profits. For example, Nansen's high subscription fees do not require profit sharing with the addresses it collects, turning personal users into "digital laborers" for data platforms.
In user-generated data products like Dune and Footprint, open data query rights are granted to individuals, but their profit models have never been sustainable. They have users but lose profits, making the commercialization process unsustainable. High user stickiness cannot be monetized, just like governance tokens like Uni cannot capture protocol value; token economics is fundamentally ineffective in this regard.
From this perspective, blockchain data products are creating new problems. Their profit acquisition methods must rely on the information asymmetry advantage created by excluding most people, which is clearly not the product that users need in the Web 3.0 era. The breakthrough lies in the combination with personal identity attributes like DID and SBT, returning personal data to individuals to activate the profit flywheel of data products.
For instance, in the token economics model of SocialFi, there is no exception in emphasizing the portability of personal data; no social protocol can take data and profits away from individuals.
Equal DID is the Only Way to Erase Inequality in Data Access
R3PO believes that the inequality created in data access cannot become the foundation of future Web 3.0. First, it must be acknowledged that decentralization means equality, a concept that has been relatively rare in past discussions on privacy and freedom. The value of unequal access rights has not been universally recognized. The flow process of personal identity in Web 2 is: centralized verification—account distribution—inter-product account recognition—account binding. In this process, the centralized verification at the starting point and the mutual recognition between accounts are the most fatal flaws, indicating that we cannot truly control our own data.
Taking traditional credit products as an example, their core lies in risk control and credit rating measures, the former controlling losses and the latter obtaining expected profits.
In this process, the biggest problem remains that individuals need to disclose personal data unidirectionally to obtain financial support, leading to long-standing criticism of data and privacy security. Meanwhile, companies cannot publicly disclose the data they acquire in commercial competition, resulting in a zero-sum game where both personal privacy and corporate transparency suffer.
The long-standing difficulty for small and micro enterprises to obtain loans is a risk-averse move by commercial banks. In the absence of a thorough investigation into the real operations of enterprises, banks may stop issuing loans to preserve profits, leading to operational difficulties for enterprises and, in severe cases, economic crises.
Image description: SSO diagram
Image source: bytebytego.com
However, Web 3.0 offers another possibility. Once a credit system based on personal data is successfully established, unsecured lending will merely be a basic operation. Market liquidity will be priced based on credit, and new risk control models will also change the current DeFi system. The biggest problem with current DeFi is its heavy reliance on USD stablecoins, centralized lending, and market makers.
R3PO believes that current DeFi is more of an experimental product in the early verification stage rather than a truly usable component of the future DeSoc (Decentralized Society) credit economic system.
The path to a credit society is becoming increasingly clear, and the gradual practicality of DID/SBT products is evidence of this. However, the current DID/SBT products are still trapped within functional modules. Beyond that, the real issue remains the lack of equality. Asia and Europe and America, the First World and the Third World, North America and Latin America—endless conflicts reveal a trend of current social inequality seeping into future society.
In the previous article, R3PO discussed the development directions and carrier products of major DID products, and this article will not elaborate further. It should be noted that the current development of DID/SBT faces the following issues:
Severe centralization, with KYC (Know Your Customer) being a major disaster area, exhibiting serious Web 2.0 path dependence and cognitive biases;
Inequality in identity acquisition, where underdeveloped regions sell personal information at extremely low prices, violating the original intent of privacy;
These two issues are often intertwined. Taking the initiators of DID/SBT products as an example, they are essentially Western projects dumping products into the Third World:
Image description: Major DID products
Image source: R3PO
Taking the Southeast Asian market as an example, it is not inferior to its Western counterparts in the GameFi sector, producing globally influential products like Axie Infinity, YGG, and Coin98. However, in the DID/SBT sector, it shows a clear disadvantage, with only Orange, Galxe, and Relation having connections to Southeast Asia, while the rest are predominantly from the West. In terms of the probability of winning competition, the two bases are severely unequal.
In stark contrast to the project parties, the cheap personal identities of Southeast Asian users are repeatedly exploited across multiple products. This de facto inequality is widespread. If Web 3.0 itself cannot solve the equal access rights to on-chain identities, then credit and loans will continue to flow to whales and institutions, just like in traditional finance.
In early 2022, the WorldCoin craze aimed to build on-chain identities for billions of people globally, envisioning a utopia where everyone's identity would be scanned onto the chain, freeing them from the shackles of existing centralized verification mechanisms, allowing for the free flow of information, identity, and assets.
It employed a promotional mechanism where each collector, by purchasing Orb human iris collection devices, would verify personal information. Each collector could earn $10-200 per day, and the number of users quickly surged to over a million. However, this collection of personal information is itself a form of information exploitation. Compared to Western users, Southeast Asian and African users are more willing to sell their information for rewards and tokens.
The front-end real-name system combined with on-chain anonymity is bound to be a misguided path for a decentralized credit society. After WorldCoin, there are still so-called DID/SBT products from Galxe and Binance BAB conducting KYC operations. In contrast to the compliance checks for GDPR regulations in the West, the Southeast Asian market has taken fewer restrictive measures, leading to a de facto inequality in personal data collection.
True DID/SBT products, like WorldCoin, Galxe, and BAB, indeed require a large amount of user data to identify user identities. However, obtaining these identity identifiers requires long-term decentralized construction. Just like DeFi products, centralized products cannot adapt to the future development trends of decentralized society.
Inequality has long existed in Web 2.0, but this shackles should not exist in Web 3.0. At the very least, promising everyone equal access rights is a long-term driving force for industry development.
Conclusion
The DID resulting from on-chain data will promote the on-chain publicization of personal identity. But can privacy still be protected? In past logic, on-chain data cannot be revoked. Regardless of truth, correctness, goodness, or legality, any information confirmed on-chain cannot be forgotten. Moreover, possessing someone's secrets is a tried-and-true method for online harassment in real society.
For current DID/SBT products, the behavioral data generated will persist on-chain, and the DeFi financial data experienced will be collected for scoring. Individuals can access any data without permission, but others can too.
In the current vision, ZK technology may be the solution. Personal information can be recorded without the other party explicitly knowing the specific content, allowing for the verification of information authenticity and personal credit status. Fundamentally, rating and rights confirmation serve to differentiate individuals, and to suppress this voyeuristic desire while ensuring the effective operation of a decentralized society, more technical routes need to seek a balance between privacy and efficiency.
