Original article: "DID: The Desire for Credit and Permissionless"
In the article "Stay One Step Ahead: Combining On-Chain Data and DID to Uncover the Mystery of Decentralization" published last week, R3PO pointed out that on-chain data is a "sinking" data infrastructure that needs to be embedded in SocialFi, GameFi, wallets and other products as a functional suite in conjunction with DID. It also focuses on analyzing the significance of domain names represented by ENS to 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 is the full openness of data, but this does not mean equal "data access rights". Limited by funds and skills, data products have embarked on a path of no return on the road to commercialization that excludes most users, creating a new pattern of inequality.
This de facto inequality will lead to the evaluation and control of the majority by a minority. At the same time, personal data is scattered across different public chains, DApps and products, and individuals cannot really add, delete, modify or query data. In addition, addresses and domain names can change at any time, and personal identities are gradually becoming fluid and fragmented in the on-chain world.
From the perspective of truly empowering individuals, R3PO believes that it is necessary to start from the unification of data sources and personal identities, return data ownership and access rights to users, and thus create a decentralized social system based on credit.
The credit system is the cornerstone of the frictionless operation of society, giving everyone the possibility to obtain equal dignity and happiness.
Web 3 Personal Identity: Confirming Asset Ownership
Personal identity is a prerequisite for the popularization of future Web 3 products, and the construction of identity through data sedimentation provides a decentralized verification method.
Taking Bitcoin as an example, its data structure is essentially a Merkle tree that is a variant of a hash pointer combined with a binary tree. The data itself is the ledger, and the ledger itself is a record of an individual's activities on the chain, from the generation of the Genesis block, to the hash collision caused by miners competing for the right to keep accounts, to the transaction information transaction (Tx) between individuals. These data constitute the blockchain itself.
However, R3PO believes that while this data stacking brings decentralization, it also brings another problem that has plagued us to this day - the anxiety of identity loss. The account system based on public and private keys actually lacks an effective way to bind individuals to the chain. Once the mnemonic or private key is lost, how to prove that you are you and how to prove that your assets are your assets will never be realized.
In order to solve the problem of lost identity, wallet solutions and on-chain data analysis tried to solve it from both ends. After eliminating all impossible answers, there is only one truth.
Specifically, the wallet solution provides a container for identity. With the help of solutions such as MPC (Multi-Party Computation) and account abstraction, social recovery connects personal identity and relationships with others. 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 his behavior was tracked in real time by tools such as Nansen.
However, the problem has not been completely solved. The wallet solution cannot solve the problem of interaction between individuals, especially in the field of strangers or public communication. DID, SBT and SocialFi need to accumulate more personal data to truly play the role of data endorsement for identity.
Just like Twitter's Blue V authentication mechanism, centralized review can ensure that personal identity is not misused. In a decentralized society, only enough data can have the effect of confirming ownership.
The biggest problem with on-chain data analysis is that it is relatively effective in tracking the addresses of whales, institutions, etc., but it cannot identify a large number of individual retail investors. At most, it can infer account behavior through data and then label them. For example, OKlink has collected 200 million physical labels, and Nansen has collected the mainstream CEX cold wallets in the cryptocurrency circle.
But labels are not identities. Multi-dimensional labels can constitute a personal body. Personal identity is a unique "on-chain asset" and a carrier of social assets. In the SBT theory, its non-tradability is also based on "uniqueness". An individual cannot sell himself, but can only sell various personal assets, such as labor and time.
Image caption: Blockchain data layering
Image credit: R3PO
R3PO believes that, as shown in the figure above, in the data hierarchy of the blockchain, the lowest data layer that truly identifies personal identity is structured, stored, and circulated on the public chain, which is equally open to anyone. Alice's address can be tracked by Bob in real time, and Bob cannot track it back without telling Alice her personal address.
Starting from the browser layer, personal data has been facing unequal storage and access, which has led to personal identity being exploited by others, but individuals cannot share their profits. For example, Nansen’s high subscription fees do not require profit sharing with the addresses it collects, and individual users have become "digital laborers" of the data platform.
In user-generated data products such as Dune and Footprint, the right to query data is opened to individuals, but their profit model has never been able to work. They have users but lose profits, the commercialization process is unsustainable, and the high user stickiness can never be monetized. Just like governance tokens such as Uni cannot capture the value of the protocol, token economics is basically ineffective for this.
From this perspective, blockchain data products are creating new problems. Their way of making profits must be based on the information asymmetry advantage brought about by excluding the majority of people. This is obviously not the product that users need in the Web 3.0 era. The way out lies in combining it with personal identity attributes such as DID and SBT, so that personal data can be returned to individuals, thus activating the profit flywheel of data products.
For example, in SocialFi's token economics model, the portability of personal data is emphasized without exception, and no social protocol can take data and profits away from individuals.
Equal DID is the only way to eliminate inequality in data access
R3PO believes that the inequality created at the data acquisition level cannot become the foundation of the future Web 3.0. First of all, we must admit that decentralization means equality, which is a relatively rare concept in previous discussions on privacy and freedom. The value of this unequal access right has not been universally recognized.
The process of personal identity transfer in Web 2 is: centralized verification - account distribution - mutual recognition of account systems between products - account binding. In this process, the centralized verification and mutual recognition between accounts at the starting point are the most fatal shortcomings, indicating that we individuals cannot truly control our own data.
Taking traditional credit products as an example, their core is risk control and credit rating measures. The former controls losses and the latter obtains expected profits.
In this process, the biggest problem is still that individuals need to disclose personal data unilaterally to obtain financial support, which has long been criticized for data and privacy security. However, it is impossible for companies to disclose the data they obtain in commercial competition, resulting in a lose-lose situation between personal privacy and corporate disclosure under a zero-sum game.
The long-term difficulty in obtaining loans for small and micro enterprises is a risk-avoidance measure taken by commercial banks. Unable to understand the true operation of each enterprise, banks will stop issuing loans in order to preserve profits. At the very least, the enterprises will have difficulties in operation, and at worst, it will lead to an economic crisis.
Image description: SSO diagram
Image source: bytebytego.com
Web 3.0 provides another possibility. After the credit system based on personal data is successfully established, unsecured lending will only be a basic operation. The market liquidity will be based on credit, and the new risk control model will also change the current DeFi system. The biggest problem with DeFi at present is that it is heavily dependent on centralized institutions such as US dollar stablecoins, centralized lending and market makers.
R3PO believes that the current DeFi is more of a test product in the early verification stage, rather than a truly usable main component of the credit economic system of the future DeSoc (decentralized society).
The path to a credit society has become increasingly clear, as evidenced by the gradual practical application of DID/SBT products. However, current DID/SBT products are still trapped in functional modules. In addition, the real problem lies in the lack of equality. The endless disputes between Asia and Europe and the United States, the first world and the third world, North America and Latin America reveal that the inequality of the current society has a tendency to infiltrate the future society.
In the previous article, R3PO discussed the development direction and carrier products of major DID products. This article will not elaborate on this. What needs to be pointed out is the problems existing in the current development of DID/SBT:
The centralized model is serious, and KYC (Know Your Customer) is the hardest hit area, showing serious Web 2.0 path dependence and mindset; Unequal access to identity, underdeveloped regions will sell personal information at extremely low prices, violating the original intention of privacy;
These two problems are often superimposed on each other. Taking the initiators of DID/SBT products as an example, it is basically the European and American project parties dumping products on the third world:
Image Description: Main DID products
Image credit: R3PO
Taking the Southeast Asian market as an example, it is not inferior to its European and American counterparts in the field of GameFi, and has produced products with global influence such as Axie Infinity, YGG, and Coin98. However, in the DID/SBT field, it shows obvious weakness. Only Orange, Galxe, and Relation can be associated with Southeast Asia, while other products are from Europe and the United States. In terms of the probability of winning the competition, the bases of the two are seriously unequal.
In sharp contrast to the relatively small number of project parties, the cheap personal identities of Southeast Asian users have been repeatedly abused in multiple products. This de facto inequality exists widely. If Web 3.0 itself cannot solve the equal access rights of on-chain identities, then credit and loans will still flow to whales and institutions, just like traditional finance in the past.
During the WorldCoin boom in early 2022, building on-chain identities for billions of people around the world became a compelling vision. In its vision, everyone's identity will be scanned into the chain, thus getting rid of the shackles of the existing centralized verification mechanism and creating a utopia where information, identity, and assets flow freely.
It uses a sales mechanism. Each collector can earn $10-200 a day by purchasing the Orb human iris collection device to screen personal information, and the number of users has quickly grown to more than one million. However, the collection of such personal information is itself a form of information exploitation. Compared with European and American users, Southeast Asian and African users are more willing to sell their information in exchange for prizes and tokens.
Real-name registration at the front end + anonymization on the chain is bound to be a wrong path in the decentralized credit society. After WorldCoin, there are still so-called DID/SBT products of Galxe and Binance BAB that are conducting KYC operations. Compared with the compliance review of GDPR regulations by Europe and the United States, the Southeast Asian market has taken fewer restrictive measures, leading to actual inequality in the collection of personal data.
Real DID/SBT products, like WorldCoin, Galxe, and BAB, do require a large amount of user data to identify the user, but the acquisition of this identity identifier requires long-term decentralized construction. Just like DeFi products, centralized products cannot adapt to the future development trend of a decentralized society.
Inequality has long existed in Web 2.0, but this shackle should not exist in Web 3.0. At the very least, a society that promises equal access to everyone is a long-term driving force for the development of the industry.
Conclusion
The DID caused by on-chain data will promote the on-chain disclosure of personal identity, so can privacy protection still be achieved?
In the past logic, data on the chain cannot be revoked. Regardless of true or false, right or wrong, good or evil, legal or not, any information confirmed on the chain will not be forgotten. Knowing someone’s secrets is also a tried-and-true secret to cyberbullying in real life.
For current DID/SBT products, the behavioral data they generate will be stored permanently on the chain, and the DeFi financial data they experience will be collected and scored. Individuals can access any data without permission, but so can others.
In the current concept, ZK technology may be the solution. Personal information can be recorded, but the authenticity of the information and personal credit status can be determined without the other party knowing the specific content. Fundamentally, rating and property rights are to distinguish the differences between people. In order to suppress this desire to pry into others' privacy and ensure the effective operation of a decentralized society, more technical routes are needed to strike a balance between privacy and efficiency.
Copyright Statement: If you need to reprint, please add our assistant on WeChat for communication. We reserve the right to pursue legal liability for any unauthorized reprint or plagiarism.
Disclaimer: The market is risky and investment should be cautious. Please strictly abide by the local laws and regulations when considering any opinions, views or conclusions in this article. The above content does not constitute any investment advice.
