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As Web3 Embraces Decentralized Identities, Businesses Must Evolve Or Die

Disclaimer: The Industry Talk section features insights by crypto industry players and is not a part of the editorial content of Cryptonews.com.

Source: Depositphotos

Pick up your smartphone, flip open your laptop and try to access any kind of web service or app, and you’ll almost certainly be prompted to enter your password. It’s a mundane and accepted part of living in the digital world, where everything is reliant on proving your identity. We’re constantly being asked to verify that we are who we say we are, but unfortunately doing so means surrendering our personal information on a daily basis. 

It’s a fact of life that using free services like Facebook and Google comes at the cost of giving up your personal data. The moment you agree to the privacy policy of these companies, your data becomes theirs, stored in a centralized server and used as a source of profit. 

For many of us, it’s a price worth paying because it means we can access everything on the internet. If you’re not prepared to give up your identity, you won’t be able to use most social media sites, you won’t be able to book tickets or accommodation online through sites like TripAdvisor and Booking.com, and you won’t be able to shop at Amazon or eBay. In a world that has become increasingly dependent on the web, the inability to access these kinds of services would be a major inconvenience. 

How DIDs Turn Identity On Its Head

However, there are signs that this won’t always be the case. As the decentralized world of Web3 takes over, users will no longer have to make this trade-off. Web3 is ushering in a superior security paradigm where you no longer need to check your phone for an SMS to get past two-factor authentication. It’s a future in which you won’t have to worry about your personal information being stolen in a data breach. That’s because Web3 is embracing a new concept known as decentralized identifiers (DIDs), and they enable a more seamless way for everyone to verify themselves, without giving up any personal information. 

With the advent of DIDs, users will regain full visibility and control over their personal data. They will be able to prove their identities and professional credentials, confirm their online profiles are legitimate, and much more, all without revealing a single thing about themselves. 

Because it’s founded on blockchain technology, Web3 supports a superior security protocol that’s based on the idea of “self-sovereign identity”. Digital wallets give us a secure way to share verified information that has been confirmed by a trusted authority, without any need to involve third parties. Your personal data is securely encrypted and stored in a decentralized way on the blockchain, meaning additional information does not have to be relayed to others when proving your identity or credentials. With this kind of technology, it becomes possible to access products and services that previously required stacks of paperwork, with a single click. 

Using DIDs, people will be able to determine their eligibility for a mortgage or loan through seamless verification of their employment status and credit history. Insurance providers will pay out reimbursements in seconds after processing the policy holder’s digital receipts. Students will be able to apply at a college in an instant, with all of their educational achievements instantly accessible through their digital wallet. These are just some of the most tangible use cases for DIDs, and they vastly improve upon today’s slow and manual application processes. 

Building The DID Economy

Businesses and service providers that intend to thrive in Web3 will need to find a way to support DIDs. The good news is that the beginnings of the DID infrastructure are already being put into place, with a number of projects working to implement next-generation identity protocols. 

It’s no surprise to learn that the world’s biggest cryptocurrency exchange, Binance, is at the forefront of these efforts. Binance recently announced its plans to issue the first-ever Soulbond Token on the BNB Chain, known as the Binance Account Bond, or BAB. Launched as a pilot project, BAB is an opt-in feature for Binance users who are compliant with KYC, enabling them to mint BAB tokens directly in their wallets while using the platform. It’s designed to function as an ID for Binance users, with third-parties able to leverage it to confirm user’s identities for activities such as NFT airdrops, quadratic voting in DAOs and more.

“As we begin to explore how credentials will function in Web3, whether it be in the form of a verifiable skillset or an earned title, further use cases for the BAB token will arise,” Binance said in a statement. “This sense of accountability paves the way for a more efficient decentralized community and space.”

While Binance is focused on its own form of DIDs, a project known as cheqd is building a privacy-preserving data network for SSIs and DIDs that will ensure users retain full control over who can see their identity data. cheqd’s infrastructure will enable users to create a digital identity that can be stored on a smartphone or other device and used to verify themselves, their credit history, qualifications and more. At the same time, it will enable projects to certify community members too. Because the ID is “signed” by a trusted authority, it can be accepted by other organizations without the need for them to perform checks of their own. 

The individual or entity would undergo a traditional KYC check once with a trusted entity and receive a secure and verified digital version of their credentials, which can then be shared with other organizations and services as required. 

The beauty of cheqd’s model is that it also enables users and organizations to incentivize DIDs. Through its infrastructure, it provides the tools for projects to define various credential schemas and invite community members to participate. In this way, a project may incentivize learning journeys by inviting community members to obtain a decentralized identity in return for access to exclusive airdrops and experiences. cheqd’s infrastructure could even have benefits for decentralized finance (DeFi). DIDs here would serve as an easily verifiable credit score that certifies the financial reputation of a user, which could, in turn, reduce the collateral the borrower would have to pay, for example. By offering better terms to those with strong credentials, DeFi protocols could attract new users, creating a win-win for both parties. 

Other projects meanwhile are focused on more specific aspects of the DID space. For instance, the likes of Spruce ID and Veramo are building open-source libraries that are intended to work specifically with DIDs and Verifiable Credentials. Meanwhile, Gitcoin Passport is an intriguing project that allows users to showcase their credentials and achievements, such as their GitHub activity, with VCs. Finally, there are also plugins on the way, with initiatives like Blockchain Lab currently developing a snap extension for Metamask, allowing Web3’s favorite wallet to support DIDs directly. 

DID You Embrace It Yet?

DIDs are a valuable innovation, and not only for end users. In fact, they will ultimately benefit organizations and service providers just as much. The big advantage for users is streamlined access management and better control of their online identity through a secure and trusted system. Meanwhile, organizations will appreciate having fewer security risks to deal with and lower costs. By utilizing DIDs, they’ll no longer need to verify their customers themselves, meaning they can completely eliminate the costs of the infrastructure required to register new users.

While businesses should always be cautious about adopting new technologies, the truth is that DIDs offer tantalizing benefits around both security and costs. In fact, these advantages could well prove to be so big that it will be the businesses who choose to ignore DIDs that run the biggest risk.