Decentralized IDs: Web3-powered decentralized identity solutions allow users to have better authority over their personal data, says Raymond Sue, CEO and Co-Founder of Capital.
In May 2022, the crypto market was shaken by the rapid demise of the algorithmic stablecoin TeraUSD (UST). In a span of a few days, the giant lost almost all of its $60 billion worth. Despite efforts to preserve the token by burning around 80,000 bitcoins, developers were forced to focus and preserve only the unique Terra blockchain.
Decentralized ID: to be regulated or regulated
The UST disaster came at a time of one of the sharpest downturns in the crypto industry. Since November 2021, the market has shrunk from about $3 to $1 trillion. The downward trend makes crypto players question the future of Web3’s various ecosystems, including Decentralized Finance (DeFi), Similar to previous blockchain initiatives, DeFi is attracting the attention of government officials. The following have emerged after Terra Meltdown:
- In early June 2022, two US senators introduced a draft bill that lays out a framework for digital finance regulation. According to Senator Kirsten Gillibrand, it would have rejected UST due to strict stablecoin requirements.
- A few weeks later, EU officials struck a deal on the Market in Crypto-Assets (MiCA) proposal, which is designed to protect investors. It imposes liability on digital finance providers for the loss of investors.
Clearly, the crypto community sees regulations as an attempt to transform the industry into a traditional Wall Street environment with its own rules and intermediaries. However, it also agrees that there is a need to deal with recurring market downturns in the near future. Within weeks of the Terra crash, there was a market transition effect: Bitcoin hit a 10-month low, the DeFi market lost nearly $100 billion, and more companies went bankrupt.
To avoid future disasters and stricter government regulations, the crypto world needs to build more robust identification systems to strengthen users’ privacy, security, and compliance.
a digital identity solution
The fall of Terra expectedly led to the rise of pro-regulation alarmists who were ready to control crypto from the outside. However, the Web3 community can provide an alternative – Decentralized Identifier (DID),
Under the Web2 umbrella, users cannot virtually avoid sharing personal data with multiple service providers. Therefore, they do not control their digital identities, regularly experience data breaches, and have no means of revoking their information once service providers have access to their information.
Meanwhile, Web3-powered decentralized identity solutions allow users to have better rights over their personal data. Instead of relying on third parties, a DID framework enables storing multiple IDs, for example, government certificates, tax documents, etc., in a secure digital wallet.
A blockchain-based distributed ledger serves as the source of all IDs held in a wallet, where they are user-managed. It allows people to share their different types of identities with different services as they see fit. With greater adoption of the DID framework, individuals are no longer locked into a single ecosystem and have control over when, with whom and under what conditions they reveal elements of their digital identity. We do.
The setup of DID with blockchain typically includes the following:
- identity wallet: An application where users store decentralized identities and manage their access to third parties.
- identity owner: A user who creates a decentralized identity through the Identity Wallet.
- issuer: A person who verifies identifying information by signing a transaction with a private key.
- service provider: Apps that authenticate with a decentralized identity.
- Blockchain and distributed ledger: An environment that empowers the mechanisms for the functioning of DID.
- did: A unique identifier consisting of details such as a set of IDs, a public key and verification information.
Decentralized ID: HOW DID REALLY WORK
Since DIDs are user-controlled, each individual can create as many DIDs as necessary to differentiate their desired identities, personalities and interactions as appropriate in different contexts. They allow interactions with other people, organizations, or systems to require identification while providing control over whether personal or private data should be shown. This happens without relying on a central authority to maintain the uninterrupted existence of the identifier.
DID can facilitate users to assign a credit score which they can use to obtain credit, borrow and invest. Therefore, people can access credit-based lending while keeping control of their identity. Additionally, a reputation system that measures on-chain behavior can help identify responsible borrowers, making the entire system more reliable. DID essentially provides an opportunity to further democratize decentralized financial systems. For example, using DID to identify each user participating in DeFi to ensure the veracity of each transaction, or to authenticate access to DeFi pools to mitigate Sybil attacks.
Furthermore, DID could potentially serve as the right conduit between virtual asset service providers (VASPs) such as crypto exchanges, wallet services and crypto custodial solutions, which are referred to as the originators of crypto transactions and Requires sharing of details of beneficiaries. ,
new cases
Exciting new potential use cases for decentralized identity use are self-sovereign identity (SSI), data monetization and data portability. SSI is the idea that users can store IDs on their own devices, choosing which pieces of data to be shared with validators.
In turn, as a ton of information is created on the Internet every day, DIDs help people maintain control over their data while guaranteeing options for data monetization. For example, they have the option of renting personal information to AI training algorithms, selling it to advertisers or sharing it for medical research.
Finally, DID provides enormous value for data portability improvement by simplifying verification processes. This not only makes life easier for customers but also allows organizations to cut costs by skipping lengthy identification processes.
Decentralized ID: Current Use Case
DID is used to protect NFT creators and buyers, DID acts as a verification of authorship across multiple platforms/markets and to ensure that duplicates are treated as originals. Cannot be sold in NFT buyers can use DID to ensure that they are buying the original NFT and not the copymint.
shaping the future
Despite the recent crypto market failures and the current downtrend, its fundamental technology is powerful enough to ensure a near-term rebound, especially as Web3 companies take time to develop and improve their projects during the crypto winter. .
The adoption of robust DID solutions will be critical to allow Web3 to go mainstream by enabling new use cases and applications. Decentralized identity is one of the solutions designed to adjust the industry to the current challenges and build on the crumbling foundation of flawed projects to make the crypto market favor the holder and their rights. We will of course keep a close eye on DID’s development and their implementation and adapt accordingly.
About the Author
raymond soo is the CEO and co-founder of Capital, a leading cryptocurrency wealth management platform. Cabital’s mission is to help people from all walks of life generate high-yield passive income from their digital assets and build a more sustainable financial industry. Prior to co-founding Cabital in 2020, Raymond worked for fintech and traditional banking institutions including Citibank, Standard Chartered Bank, eBay, and Airvolex.
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