Web3 Identity and the Evolution of Digital Identity

Key Takeaways:

• Web3 Identity represents a paradigm shift in digital identity management, leveraging blockchain technology for a decentralized approach.
• Digital identity in Web3 moves towards user-controlled, decentralized management, contrasting centralized systems of Web 2.0.
• Web3’s core aspects include user engagement, data decentralization, operational transparency, and blockchain technology.
• Centralized and Federated Identity Management Systems have limitations and security risks, leading to data breaches and privacy concerns.
• Blockchain technology plays a pivotal role in Web3’s digital identity, enabling self-sovereign identity and secure, interoperable digital credentials.

 

Web3, the first decentralized internet built on blockchain technology, is the future. The transition is currently underway, and structures are being built to accommodate the migration of most internet users to this new world soon. The transition from Web 1.0 to 2.0 will not be comparable to what is about to come, since Web3 includes more than just mobile devices and desktops, but the Internet of Things (IoT) and every internet-enabled device. This massive reconfiguration of the web architecture will affect all surrounding technology.

The next phase of the web consists of different layers, one of which is identity management. With Web3, identity management will shift away from centralized and federated systems to a decentralized system, owned, hosted, and managed by individual users. What impact will this have on the internet’s operation? 

Identity in the Digital World

Identity goes beyond mere identification; it represents who we truly are. It captures our beliefs, political views, relationships, and our interactions with the world. It goes beyond credentials like proof of name, address, and nationality. Our identities are shaped by various experiences and activities that mold us into the individuals we are today. The digital counterpart of this complex concept is referred to as digital identity — a representation of our individuality in the digital realm. 

What Is Digital Identity?

Our digital identity is essentially a trail of digital footprints we leave on the internet. This includes elements such as names, emails, browsing history, online transactions, and even internet-based relationships. In the era of Web 2.0, which relies on centralized and federated databases, tech giants have leveraged these pieces of our digital footprints for financial gain. However, Web 3.0 promises to bring decentralized databases and blockchain-based identity to life.

What Is Web3 Identity?

In contrast to Web 2.0 & 1.0, Web3 differs in how it stores and provides access to identity for apps, platforms, and users. An individual’s identity is the set of personal data and information that makes them who they are. This information includes names, email addresses, usernames, passwords, and other sensitive details.

Web3 identity takes away from the traditional centralized data silos and instead places data control directly into the hands of users. This approach not only makes users the custodians of their own data but also promotes interoperability, allowing one set of identities and credentials to be universally recognized across multiple platforms. This is the essence of Web3 identity: a decentralized, user-centric, and interoperable identity management system. 

Understanding Web3

We are currently witnessing a significant transition in the internet landscape, moving into its next phase known as Web3. This evolution marks a notable shift from the operational models of Web 1.0 and 2.0. In contrast to these previous versions, Web3 introduces a unique user engagement model. Users are encouraged to consume information and socialize, as they did before. However, Web3 takes it a step further by promoting active user engagement. This includes not just content creation, but also participation in the operation of the platform itself.

To illustrate, consider Facebook, a prototypical Web 2.0 platform where users socialize and produce content. Despite their contributions, users have no control over the platform’s operations, policies, or their own data. Web3 seeks to redefine this paradigm by creating an ecosystem where users can socialize, connect, participate in governance, and maintain control over their own data.

Leveraging blockchain technology, Web3 frees users’ data from government and corporate control. In the Web3 era, data will no longer be stored in centralized silos. Instead, it will be distributed across users’ devices worldwide, a process known as decentralization. Furthermore, Web3 does more than just decentralize data storage. It also ensures operational transparency, unlike centralized databases and federated identity management systems. Blockchain’s inherent transparency is a fundamental feature of Web3. Thus, Web3 essentially embodies the architecture and characteristics of blockchain technology, including decentralization, permissionlessness, trustlessness, and cryptographic security.

Understanding what Web3 stands for makes it easier to understand the importance of digital identity in this next phase of the web and why it matters. In addition, understanding the role of centralized and federated identity management systems in previous phases of the Web (1.0 and 2.0) is beneficial. This knowledge helps us better appreciate the transformation brought about by blockchain-powered digital identity in Web3.

What Is Centralized Identity Management (CIM)

Every technological advancement, regardless of its potential loopholes or disadvantages, carries certain benefits. Centralized identity management is no exception. It played a pivotal role in making Web 2.0 more interactive by facilitating the collection of user information, which led to a more personalized web experience. This system allowed users to access websites and apps using their emails, usernames, and passwords.

The web’s enhanced ability to gather user information cleared the path for platforms like Facebook, Twitter, and YouTube, encouraging content creation. However, this also allowed tech giants to collect more detailed user data, resulting in privacy infringements. Centralized identity management plays a critical role in the web’s evolution. However, it has also facilitated data breaches and, in some instances, enabled data theft for malicious purposes. The dual nature of centralized identity management emphasizes the need for better privacy measures in the digital world.

What Is Federated Identity Management (FIM)?

A Federated Identity Management System fetches users’ data or login credentials from a central database, which serves as a centralized identity management system. The system involves a collaboration with reputable partners (such as Facebook, Google, Microsoft, etc.) that use their established databases to verify users identities.

This process allows users to access multiple platforms using their existing credentials, without the need for fresh registrations. The partners involved in this relationship refer to themselves as trust domains. Single Sign-On (SSO) also operates under this identity management system.

The Disadvantages of CIM and FIM

1. Centralized Identity Management (CIM) stores users’ login details, so each website, app, and platform requires its own login credentials, creating a point of vulnerability for bad actors.
2. Despite how little time is spent logging into different websites, it reduces productivity and serves as a distraction. Federated Identity Management (FIM) promised to remove this distraction that reduces workplace efficiency. It has successfully achieved that with its architecture, but FIM comes with its limitations and security risks. An example of FIM becoming a weak point is when a user has a weak password, which can compromise multiple accounts or allow unauthorized access to the database. If a bad actor gains access to the FIM database used for multiple platforms, a single data breach can lead to multiple breaches.
3. Some companies lack federated identity management plans, which ensure security and data safety across the board. The lack of this opens up the FIM system to more security risks and easy data breaches.
4. The federated system shares users’ data from the trust domain to other sub-platforms (partners). Unfortunately, users are often unaware of the criticality of data sharing and storage for their privacy and safety.
5. Although there are security measures in place to ensure user safety and privacy, only some providers that run a FIM system are committed to implementing these safety practices.
6. Centralized databases commonly experience insider threats and security theft, which remain a concern. Federated identity management, despite its introduction, has not addressed or eliminated these issues
7.  Joining multiple FIM partnerships becomes complex and demanding for companies, which increases the risk of data breaches. As a result, users feel the burn of these actions.

What Is Decentralized Identity Management (DIM)

Decentralized Identity Management is a strategy within “Identity and Access Management (IAM)” that allows individuals to store and control their identities independently, without the oversight of central authorities. Despite this, it still allows features similar to single sign-on (SSO) or federated identity, enabling users to access various platforms and apps from a single data source. Consequently, this approach overcomes the challenges associated with previous identity management systems.

Digital identity has been an excellent alternative to physical proof of identity, but it comes with risks and privacy breaches. People have made several attempts to solve this challenge, but none have been successful. Decentralized Identity Management systems through blockchain, decentralized identifiers (DIDs), and self-sovereign identity (SSI) have provided a lasting solution to these identity management crises.

Users have their heir credentials stored in digital wallets. These credentials serve as a powerful tool for registering or logging into different platforms, acting as passcodes or access keys. Users’ personal identifiable information (PII), i.e., the users’ data, are under the control of the users via decentralized databases. The decentralized nature of Web3’s advanced technology makes this identity management solution suitable for handling the unique challenges of the new phase of the web.

What Are The Benefits of Decentralized Identity Management (DIM)?

Decentralized identity management (DIM) in Web 3.0 addresses limitations of earlier Web 2.0 and 1.0 systems, offering key benefits like control, security, privacy, and interoperability.

1. Control: DIM empowers users to break free from tech giants exploiting their data. It enables personal storage of data and digital identifiers linked to one’s digital footprint.
2. Security: Addressing vulnerabilities of centralized databases, DIM protects personal information, from emails to credit card details, on highly secure decentralized platforms.
3. Privacy: DIM uses zero-proof confirmation, limiting platforms’ access to user information. For services requiring age verification, users provide only the necessary digital credentials, not detailed personal data.
4. Interoperability: Users benefit from the ease of accessing Web3 applications and submitting credentials via digital wallets, which serve as secure custodians, all with a simple click

Why Digital Identity Matters in the Web3 Era

The foundation laid up to this point has made digital identity a crucial element in Web3 architecture. Digital identity enables advancements like access to the metaverse, NFT ownership, and participation in DAO governance.

The Web 2.0 model thrived on collecting and monetizing user data, leading to questionable practices and the rise of addictive social media platforms. These platforms often kept users engaged primarily to harvest valuable data for targeted advertising.

Unlike Web 2.0, Web3 doesn’t primarily rely on data sharing, selling, or marketing for revenue. Instead, Web3 seeks to free users from platforms that exploit their data solely for advertising gains.

Furthermore, Web3 promises enhanced user privacy. Regulations such as CPRA and GDPR are in place to oversee how companies access user data and to set boundaries on the extent of control they have over this data within their centralized identity management systems. With Web3, the approach shifts away from a single centralized database. Instead, users will either manage their own data or rely on smaller storage devices. This decentralized approach mitigates the risk of data breaches common in centralized systems.

Components of Digital Identity in Web3

Any data or internet footprint traceable to an individual or entity is referred to as a digital identity. Centralized identity management makes it easy to tamper with data, but users can mitigate this vulnerability by taking control of their digital identity. Below are the three components of Web3:

1. Decentralized Identifier (DIDs)
2. Verifiable Credentials (VCs)
3. Blockchain

Decentralized Identifiers (DIDs)

DIDs are a type of Uniform Resource Identifier (URI) that are globally unique and built on decentralized databases. While third-party identifiers use centralized databases, DIDs use the blockchain framework (decentralized). The blockchain can identify and verify individuals with DIDs.

DIDs are based on encryption and decryption technology, making them cryptographically verifiable and containing no personally identifiable information (PII). Users create, own, and control them, making them independent of any organization. Check out this extensive article about Decentralized Identifiers (DIDs).

Verifiable Credentials (VCs)

Some e-KYC processes convert physical/hard copies into digital copies. Verifiable Credentials are beyond just scanning documents for KYC verification. VCs are cryptographically enabled digital credentials; they are secure and tamper-evident through digital signatures. It is impossible to fake or forge these documents without evidence of tampering. They represent a new form of digital credentials that individuals can present to organizations or verifiers. Their validity or authenticity can be verified directly from the issuer within seconds. 

The “trust triangle of verifiable credentials” ecosystem manages a verifiable credential’s issuance, validity, and authenticity. It comprises of the holder, issuer, and verifier. Check out this extensive article about Verifiable Credentials (VCs).

Blockchain

This is the connecting line between verifiable credentials and decentralized identifiers. Blockchain not only brings the architecture of digital identity to life, but it also provides robust security measures. In essence, blockchain is a strong security wall. Blockchain is a decentralized database or ledger shared across tons of computers globally. A network of connected computers is also known as a blockchain network.

A blockchain is a prime example of distributed ledger technology (DLT) as it involves a continuously active network of computers recording information in a distributed manner. Due to the blockchain system’s design, altering data stored on a blockchain through the backdoor is impossible. It is impossible to hack or cheat the system, not even by the most powerful supercomputer in the world. Theoretically, hacking is impossible because you will have to hack all the connected nodes of thousands of computers scattered globally.Check out this extensive article about the key components of the blockchain network. 

Blockchain’s Impact on Digital Identity

Building on the strong security and decentralized nature of blockchain, we can see its clear-cut implications for digital identity in the Web3 era. Blockchain serves as more than just a security wall; it becomes the bedrock for a new approach in identity management. It enables the concept of self-sovereign identity, where individuals gain full control over their personal data, a significant shift from traditional centralized systems.

Furthermore, blockchain aids in the creation of interoperable digital identities, simplifying user interactions across a multitude of platforms. It also supports the generation of verifiable credentials, adding an extra layer of security to online transactions. In essence, blockchain is not just a component of the Web3 infrastructure, but a transformative force reshaping the concept of digital identity.

Conclusion

Users’ identities revolve around every technology, regardless of the type of identity and access management system adopted by such technology or platform. This further proves that humans created technology to serve them, rather than the other way around.

The ultimate question will remain: How can these pieces of technology serve the end users without putting their sensitive data at risk?

The digital identity architecture of Web3 promises a solution of bringing data to the total control of end users. This is why digital identity matters in Web3.

Identity.com

We are pursuing a user-centric internet where users have control over their data. Interestingly, Web3 and digital identity seem to be excelling in these areas. More reason why Identity.com doesn’t take the back seat in contributing to this future via identity management systems and protocols. We also belong to the World Wide Web Consortium (W3C), the standards body for the World Wide Web.

The work of Identity.com as a future-oriented company is helping many businesses by giving their customers a hassle-free identity verification process. Identity.com is an open-source ecosystem providing access to on-chain and secure identity verification. Our solutions improve the user experience and reduce onboarding friction through reusable and interoperable Gateway Passes. Please refer to our docs for more info about how we can help you with identity verification and general KYC processes.