The easily overlooked DID is the passport to Web3

introduce

The creation of the Internet did not provide people with a native identity layer. Because of this, the problem of digital identity is boiled down to websites and applications. This isolated method may be appropriate in the early days of the Internet, but as billions of people now go online, its shortcomings become more and more obvious. Usernames and passwords are still the mainstream model, although it has been repeatedly proven to be an insecure model. On average, everyone has to deal with 70 to 80 passwords, resulting in a significant decline in user experience. In fact, there are some multi-million dollar companies that are built around helping companies and individuals manage their scattered accounts, such as Okta, 1Password, and Dashlane. Most importantly, users do not actually have their online identities. Instead, they rent from companies and centralized entities. Therefore, they are prone to the risk of their digital identities being hacked, manipulated, censored, or simply lost.

The emergence of Web3 has fundamentally embedded economic transfer, and has renewed the emphasis on creating a powerful identity system. Although compared with DeFi, NFT and DAO, decentralized identity (DID) is largely an overlooked topic, but we believe that it is the key technology foundation for realizing Web3 native applications. If we create a shared, flexible, and resilient identity layer, we can greatly release the pace of innovation by creating a wider design space.

In this report, we introduced key DID concepts and the current DID ecosystem from a high level, and delved into some of the projects that are at the forefront of building the foundation of Web3 identity.

Decentralized identification (DID)

The DID specification from W3C is a widely accepted standard to ensure that the identity system can interoperate on different networks and platforms.

Below is an overview of the DID architecture. DID is an address on the Internet that someone can directly own and control. It can be used to find connected DID files, which contain DID-related information. DID files contain relevant information to implement use cases, such as sign-in, data encryption, communication, etc. Encrypted proofs, such as digital signatures, allow entities to prove control of these identifiers.

The basic components of DID architecture

The easily overlooked DID is the passport to Web3

All in all, DID is the identity center. Since users control their hub, they can decide when, with whom, and under what conditions their digital identity elements will be revealed. As the DID standard is adopted by more people, individuals will not be locked into a single ecosystem or isolated approach.

DIDs provide users with control, security, privacy and portability

The easily overlooked DID is the passport to Web3

DIDs enable new use cases

In the physical world, identity is indispensable for a well-functioning society. Passports enable the government to identify their citizens, driving licenses enable citizens to claim the right to go on the road, qualifications for university degrees, etc.

Likewise, DIDs will enable high-value Internet economic activities. Below, we highlight some of the current pain points of Web3 that DIDs can solve.

NFTs-Authenticity and Identity

Fraud and plagiarism continue to plague artists and creators. For example, Derek Laufman, the digital artist and designer of Marvel’s Super Hero Adventures, saw his work being auctioned off the NFT platform Rarible without his knowledge. Stories like this are very common.

NFT fraud continues to plague artists

The easily overlooked DID is the passport to Web3

(Source: twitter)

A strong DID infrastructure can solve this problem. Applications can be built on the basis of DID, allowing creators to prove that NFTs representing digital or physical assets were created by them. Buyers and sellers will also be able to verify the origin of digital artwork. DID can also help promote more contact between artists and their communities, such as restricting the ownership of NFTs to community members to limit speculation by scalpers, or providing exclusive NFT content to specific holders.

More broadly, NFTs can be used as an anchor for decentralized identities. There are already some users not only using usernames but also using NFT projects to identify their online presence. As an example, Manifold’s co-founder @richerd explained that he rejected the $9.5 million offer for his cryptopunk NFT because he believes his cryptopunk is his identity and brand.

NFTs as online identities

The easily overlooked DID is the passport to Web3

(Source: Twitter (@richerd))

Turn on the next stage of DeFi

So far, mortgage loans have been the backbone of DeFi’s growth. But since the goal of cryptocurrency financial agreements is to be completely trustless and permissionless, they often require overcollateralization. For example, a loan issued with ETH on MakerDAO requires a mortgage rate of 130-170%. This has provided the impetus for DeFi’s growth over the past year, but the collateral requirements limit its use mainly to cryptocurrency traders who want to assume leverage. For most people, the reason they want to borrow is because they don’t have the money they need.

Reducing or completely eliminating collateral requirements is the key to introducing DeFi into large-scale applications. Having a strong DID layer allows “on-chain” credit scoring and provides users with credit-based loan opportunities. In addition, because users directly control their credit scores, they can better monitor and adjust their lending behavior. Therefore, DID provides an opportunity to further democratize the decentralized financial system.

In addition, having a strong identity layer in financial applications can solve other current DeFi problems, such as:

  • Improve the fair distribution of token airdrops by verifying actual members and reducing the possibility of robots diluting airdrop events.
  • Use DID to check access to DeFi pools to reduce spam/Sybil attacks, or provide compliance tools to identify counterparties and enable institutions to participate.
  • Guide users through the dark forest of Ethereum, illuminating trusted participants to act in a positive-sum manner.

Decentralized Autonomous Organization (DAO)

DAOs usually use token-based governance for voting, influence, and priority. This usually makes sense-a large number of token holders have the most skins in the game-but it may exclude or deprive those active contributors who may not have significant capital of priority. Although members can build their reputation in the DAO, they may need to build credibility from scratch in the new environment.

DIDs can retain the reputation of a user in multiple DAOs. The migration of certificates from one DAO to another reflects the portability of the credibility we already enjoy in the physical world, preventing active contributors from starting from scratch. In addition, other Web3 backgrounds, such as participating in Gitcoin, publishing articles on Mirror, or contributing code on Radicle, can further help DAO find qualified candidates.

DID ecosystem

The DID ecosystem can be broken down into several layers, each of which is built on top of the underlying protocol. We made full use of and slightly modified DIF’s 4-layer identity model to map the current DID project according to its main focus, but it should be reminded that this is a simplified model, and most projects go beyond one layer.

Layered decentralized identity ecosystem

The easily overlooked DID is the passport to Web3

(Source: DIF, Amber Group)

  • Layer 1: Identifiers and Standerds

Standards, identifiers, and namespaces create a common trust layer to ensure standardization, portability, and interoperability. They also allow the network to register and manage the DID method, and provide developers and users with the rules and background of the network ID system.

The Decentralized Identity Foundation (DIF) is a key player in this layer and the cornerstone of the ecosystem. As the center of development, discussion and management of all activities, it needs to create and maintain an interoperable open ecosystem for the DID stack.

  • Layer 2: Infrastructure (Infrustructure)

The infrastructure and proxy framework allows applications to interact directly with each other and verifiable data registries. These solutions include communication, storage, and key management. We emphasize that Ceramic and ENS are the first-line projects in the construction of DID infrastructure (although the classification of ENS can be disputed, we put it at the infrastructure layer because we foresee that credentials and applications will be built on top of ENS in the future) .

  • Layer 3: Credentials

Credentials must be managed, updated and exchanged. The purpose of this layer is to try to solve how DID negotiates the proof of control and authentication, and securely transfer data between identity owners.

BrightID is a noteworthy project in this area. It is a social identity network with more than 30,000 users, allowing people to prove to the application that they are not using multiple accounts, thereby minimizing the chance of Sybil attacks.

Vitalik Buterin talks about potential applications of BrightID

The easily overlooked DID is the passport to Web3

(Source: Twitter (@VitalikButerin))

  • Layer 4: Apps, wallets and products (Apps, Wallets, and Products)

This layer is probably the most familiar to readers and intends to provide consumers with real-world use cases and value. Some projects, such as Goldfinch (unsecured loans), use proprietary unique entity checks, but the goal is to utilize decentralized ID solutions when they mature. In contrast, other applications have already leveraged existing DID technologies, such as TrueFi (unsecured loans with on-chain credit scores), Gitcoin (funding public goods), and Escsign (decentralized electronic protocols).

  • Layer X: Transversal

These projects go beyond any single layer to a large extent and have an impact on multiple levels. For example, the GDPR data protection law in Europe affects all areas of the ecosystem.

The value of tokens in the DID ecosystem

The easily overlooked DID is the passport to Web3

(Source: CoinGecko, Coinmarketcap as of 22 November 2021)

Select DID item

Ethereum Name Service-Public Archives of Ethereum

The Ethereum Name Service (ENS) is a basic tool that can turn any Ethereum address into a public file. Its main job is to map human-readable names to machine-readable identifiers. Instead of trading with “0x7fc7a9694A09077e137f953108265ad59cCF5ba3”, you can enter “amberfin.eth” instead. Moreover, due to the hierarchical nature of ENS, anyone who owns the domain name may also have a subdomain name. For example, because Amber Group owns “amberfin.eth”, it can also create “pay.mberfin.eth”. ENS domain names can also have text records, which allows users to store a variety of data, all linked to only one identifier. In this setting, there is no centralized entity or company involved.

  • Amber Group’s ENS Records

The easily overlooked DID is the passport to Web3

The use cases of ENS continue to grow. A full DNS integration of ENS was launched in August of this year, so you can send encrypted currency to “example.com” instead of “example.eth”. In addition, the .eth domain name can also be used to build a decentralized website. For example, Ethereum co-founder Vitalik Buterin used this DNS integration with IPFS to create a powerful, censorship-resistant website https://vitalik.eth/.

ENS is likely to play a key role in future portable and decentralized identities. It is registered as DID-representation, allowing ENS names to be packaged as DID to promote interoperability. Many Web3 users already use ENS as their identifier. A survey of ~300 Ethereum users found that ~64% of users already have an ENS. On-chain analysis shows that ENS users have an average of 2.5 domain names. With the introduction of additional features (such as NFT avatar support) and the increasing adoption of ENS by dApps, Web3 users may increasingly use ENS as their de facto public identity on Ethereum.

ENS Name and Avatar Support on Uniswap

The easily overlooked DID is the passport to Web3

ENS Ecosystem

The easily overlooked DID is the passport to Web3

On November 2, ENS announced that it was conducting decentralized governance by accepting applications from DAO representatives and airdropping $ENS governance tokens. The airdrop includes 25% of the total maximum supply; the remaining part will be used for community finance and contributors. The distribution is basically to provide half of the total tokens to people in the past (previous contributors and users) and half to people in the future (community coffers).

ENS token distribution

The easily overlooked DID is the passport to Web3

The holders of $ENS tokens only hold the governance rights of DAO and do not receive additional monetary value. Uniquely, holders of $ENS tokens are required to sign the ENS Constitution, which emphasizes key principles—such as enforcement of property rights, avoidance of rent-seeking behavior, and integration with global namespaces—to claim their tokens . Therefore, one of the most exciting aspects of the $ENS token is that it is a big experiment on how the market sets prices for digital public goods.

ENS has generated nearly 20 million U.S. dollars in revenue, mainly from the registration of new domain names, and these revenues will go to the DAO treasury.

ENS monthly income

The easily overlooked DID is the passport to Web3

(Source: Dune Analytics (@makoto))

ENS’s revenue per transaction is also increasing, which indicates that users have taken longer to register domain names, obtained higher-value domain names (ie shorter domain names), or both.

ENS revenue per transaction

The easily overlooked DID is the passport to Web3

(Source: Dune Analytics (@makoto))

After hitting an intraday high of approximately US$8.4 billion, the fully-diluted market value of ENS is currently [US$4.2 billion], which means this is based on a P/E ratio of 236 times over the past 12 months.

ENS market value (fully-diluted)

The easily overlooked DID is the passport to Web3

(Source: CoinGecko)

Metamask-the gateway to blockchain applications

In the new technology paradigm, the solutions that users most frequently interact with often have a huge impact on the future development of the industry. Similar to the browser is the battlefield of Web1 (Netscape, Internet Explorer, Google Chrome) and the application of Web2 (Facebook, Instagram, Netflix, Spotify), the wallet may become the battlefield of Web3.

If you have ever interacted with a Web3 application, you have probably used Metamask. Launched by ConsenSys in 2016, Metamask is a non-regulated cryptocurrency wallet that allows users to interact with the Ethereum blockchain and any Ethereum-compatible network (such as Polygon, Arbitrum, Avalanche).

Although not strictly focusing on decentralized identities, Metamask serves as the de facto application for more than 21 million monthly active users to access their Ethereum addresses. Parallel to the Web2 single sign-on (SSO) option, almost all EVM-compatible Web3 applications will provide “Login with Metamask”.

Registration options for Augur (left) and OpenSea (right)

The easily overlooked DID is the passport to Web3

As a powerful mental model, Metamask shows what a broader DID solution looks like, while also emphasizing the promise and danger of self-sovereignty. Since Metamask users hold their own private keys, they truly own the assets in their wallets. There is no need to trust the safety and custody of third parties. In addition, users can seamlessly transfer assets from one application to another. For example, NFTs purchased on SuperRare can be easily sold on OpenSea, which limits platform lock-in and enhances portability. It can be said that the customer experience has also been improved-users do not need to deal with complicated registration procedures and manage multiple usernames/passwords, only need to connect to their Metamask wallet to try new applications. And, even though “connecting to wallets” may seem fragmented, it is important to remember that these wallets are just user interfaces and all use the same basic account system-you can import your Web3 account into other wallets.

Import an account to Metamask

The easily overlooked DID is the passport to Web3

However, hackers and scams abound. Web3 users must be highly vigilant about the security of their wallets to avoid losing control of all their assets. Even losing the seed phrase of the wallet can cause permanent loss of funds. Therefore, some users may still prefer to delegate account security and management to a third-party custodian.

Metamask is expected to gradually transition to decentralized governance. Joseph Lubin, the founder of ConsenSys, recently stated that Metamask will launch a token in the near future. Erik Marks, a senior software engineer at Metamask, stated that the project is “absolutely open to the idea of ​​making the project owned by the community”, although the team hopes that the Metamask token use case is convincing. Some people speculate that if Metamask does make an airdrop, users who have used Metamask’s swap function will be the main deciding factor.

The CEO of Consensys talks about the issuance of Metamask tokens

The easily overlooked DID is the passport to Web3

(Source: Twitter (@ethereumJoseph))

Metamask mainly achieves profit through its embedded swap function (monetizes), which aggregates data from decentralized exchange aggregators, market makers, and DEX, and adds 0.85% of swap fees on it. Since the beginning of this year, the adoption of swap features has grown substantially-Metamask received approximately $40 million in swap fees from its swaps last month.

Metamask swap daily transaction volume and DAUs on Ethereum L1

The easily overlooked DID is the passport to Web3

(Source: Dune Analytics (@tomhschmidt))

In fact, the revenue growth of Metamask’s swap function has significantly exceeded the revenue growth of Sushiswap and Curve.

Comparison of Metamask’s revenue and DeFi protocol revenue

The easily overlooked DID is the passport to Web3

(Source: Dune Analytics (@momir))

Uniswap and 1inch, the leading Ethereum DEX and DEX aggregators, respectively, constitute most of Metamask’s liquidity source.

The source of Metamask Swap’s liquidity

The easily overlooked DID is the passport to Web3

(Source: Dune Analytics (@momir), November 21, 2021)

The potential valuation range of Metamask tokens is wide. Stock valuations are not directly comparable, but ConsenSys’ recent equity financing (US$200 million, valued at US$3.2 billion) can provide a rough estimate of the possible value of Metamask tokens (when Sky Mavis made equity financing at a valuation of US$3 billion) , AXS tokens are worth about 4 to 5 billion U.S. dollars). The comparability of direct tokens also shows a wide range. Applying a multiple of US$500 to US$1,000 per MAU indicates a potential valuation range of US$10.5 billion to US$21 billion.

ConsenSys’ valuation benchmark

The easily overlooked DID is the passport to Web3

(来源:Public filings, Capital IQ, CoinGecko, Amber Group estimates)

Ceramic

Ceramic is a public, decentralized data network used to manage dynamic and variable information on the Internet. It provides developers with the ability to build applications without a database or server by creating a flexible primitive called Ceramic streams.

On Ceramic, each piece of information is represented as an append-only commit log, called a stream. Each stream is a directed acyclic graph (DAG) stored in IPLD, with an immutable name called StreamID, and a verifiable state called StreamState. A stream is conceptually similar to a Git tree, and each stream can be thought of as its own blockchain, ledger, or event log. Tile Documents is a type of Ceramic StreamType, which is often used as identity metadata (such as archives, social graphs, linked social accounts), user-generated content (such as blog posts, social media), DID files, verifiable credentials, etc. Alternatives to the database.

The protocol does not rely on any specific blockchain. Rather, it can be conceptualized as a “document chain”, in which verifying the status of a particular document only requires the user to synchronize the data of a given document. Users do not need to synchronize the state of the entire network as most blockchain networks (such as Bitcoin, Ethereum) usually do. Therefore, there is no global file ledger.

One of Ceramic’s key tools is IDX, which is a cross-chain identity protocol that provides a unified repository where all applications can register and discover data sources related to the user’s DID. It can be thought of as a decentralized user table. Therefore, IDX allows users to control their identity and data without locking any single application, and easily protect and port their data across applications. At the same time, it allows developers to build data-rich applications without forcing users to recreate the same data on each application.

Ceramic is an important middleware in the DID technology stack (stack). Some projects built on the Ceramic network have seen traction and market adaptability, including:

  • Boardroom: A DAO governance management platform that uses Ceramic’s platform to store proposal comments.
  • Rabbithole: Encourage people to use the application of the Web3 project, allowing them to earn points and cryptocurrency. Rabbithole uses the Ceramic network to connect multiple Web2 and Web3 accounts into a unified, cross-chain DID, and allows users’ reputation across other Web3 applications.
  • ArcX: A decentralized application that provides on-chain credit scores and identities by issuing “DeFi Passports”.

in conclusion

The Internet is perhaps the most important invention of this century. In the past two decades, it has changed the basic nature of information flow in society: media, politics, news, education, social interaction, and so on. However, even if economic activity is increasingly shifting from atomic to byte, our online identity still lacks true ownership and remains isolated within the platform.

With the emergence of the Internet of Value, a powerful DID solution will be needed to make Web3 become mainstream by enabling new use cases. We are still in the early stages, but the future is bright. Due to the composability and interoperability of the DID standard, the power generated by each new application will affect another application. We expect the importance of DID solutions will continue to grow exponentially in the next few years, and start the next major cycle of Web3 applications.

Appendix 1: A beginner’s guide to ENS domain names

First, connect your wallet to the ENS app.

The easily overlooked DID is the passport to Web3

Search for the domain name you want to register. The price of an ENS domain name varies by length-the shorter the domain name, the higher the price. If it is available, you will be able to register for many years. Each registration and renewal costs money, so it is most cost-effective to register for at least a few years. Click “Apply for Registration”, wait one minute, and then complete the registration to secure your ENS domain name.

The easily overlooked DID is the passport to Web3

Go to “My Account” and set up a reverse record. You can only have one main ENS name for each Ethereum address. After that, any party who transacts with you can refer to your .eth address instead of your public key.

You can also click on your ENS domain name to modify the text record of your domain name. If you want to connect your DNS registrar with your ENS name at the same time, a guide has been published on the ENS Medium blog.

Posted by:CoinYuppie,Reprinted with attribution to:https://coinyuppie.com/the-easily-overlooked-did-is-the-passport-to-web3/
Coinyuppie is an open information publishing platform, all information provided is not related to the views and positions of coinyuppie, and does not constitute any investment and financial advice. Users are expected to carefully screen and prevent risks.

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