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Digital Identity and Why Self-Custody Is the Future
It's time we took our personal data in our own hands.
Identity is a critical part of our lives, and it is essential to have a means of verifying our identities when we interact with others, whether it be in the physical world or online.
But when we look at the ways we currently go about proving facts about ourselves, we come to a shocking realization that they are wholly inefficient, overreaching, and insecure.
This creates liabilities for us as individuals, companies we do business with, and institutions overseeing the rules of the game.
Data privacy is the name of the game these days, and finding a mechanism to preserve one's privacy and personal information while having access to all that our modern society has to offer can be a challenge.
Imagine moving your driver's license on-chain.
And then using it to prove your age at an event without showing a stranger unnecessary details like your address. No more sacrificing privacy!
Today we’re going to discuss:
Our current identity systems and their shortcomings;
What are self-custody identities;
How ShareRing is solving the problem;
Is there a future where all our crypto and web3 stuff is stored in one wallet;
Adoption of self-custody identities.
Let's dig in…
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Where is Digital Identity Today and What are Its Problems?
Much has been said about the importance of self-custody when it comes to holding our crypto assets safe; everyone is familiar with the crypto mantra "not your keys, not your coins".
So why not hold personally identifiable information to as high a standard?
Yet, no one can say with confidence they know all the databases their personal data is stored in. We've lost track, and have no way of finding out, either.
The price of proving even the tiniest amount of data about ourselves has become unreasonably high. Both online and offline, maintaining the privacy of our personally identifiable data has become an increasingly difficult task.
But data privacy concerns are only a symptom of a deeper problem that blockchains are able to solve - data ownership.
Existing government and institution issued identities do not have digital versions that anyone can verify independently and trust fully; this has implications both in the digital world and the physical one.
Many of us have likely encountered instances in our lives where we’ve had to overshare our information with third parties without the ability to choose what to share and what not.
A physical world example of this would be buying alcohol in a gas station, where we need to prove we're over the legal drinking age by showing our ID, which often contains not only that fact, but also our birth date, full name, ID number, and even our home address!
Online, we face similar issues, such as undergoing a centralized exchange's KYC process, which requires us to not only upload to their database a two-sided photo of our passport, but also to take a selfie with it. And all of this to basically check if we're of legal age and do not reside in unsavory jurisdictions.
These are just a few of the many instances where companies hold onto data that is largely irrelevant to them anyway, and yet they are obligated by law to keep it stored in their databases.
Not only is this practice harmful to users, it’s also an enormous liability for these companies who have to spend a lot of money on (sometimes unsuccessfully) storing and securing this data.
So what are the solutions we could use to overcome this problem that plagues all of the stakeholders involved, and can we do better? We in the Web3 Academy think so!
Enter self-custody identities.
What Is Identity Self-Custody?
They offer a frictionless way to overcome all of these inconveniences in the most elegant way, all the while guaranteeing ownership over our most precious data.
For example, in a digital identity-powered world our alcohol purchasing adventure would be as simple as scanning a QR code with our phone, which would automatically confirm the fact that we are indeed over the legal drinking age...and that's about it.
Thanks to Zero Knowledge Proofs, no other piece of information would have been allowed to leak out.
So far traditional financial institutions have been unable to participate in DeFi largely due to counterparty risk of interacting with unknown borrowers and lenders on decentralized protocols.
In this scenario, a decentralized digital identity would enable a DeFi protocol to become fully KYC compliant without storing any data, allowing institutions to join the fun. 🥳
Innovations in cryptography have given us tools that allow us to have unprecedented control over our data, and we should take full advantage of it.
We are living in times when we are producing more and more data about ourselves, and companies are bending over backwards to acquire and monetize it.
By embracing solutions for self-custody identities, stakeholders on all sides of the equation should see this as an opportunity to build a better, safer, and cheaper infrastructure that’s easier to use and offers a range of new products and avenues for growth!
Let the positive-sum games begin…
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The ShareRing Ecosystem and How They Make Self-Custody Identities Happen
It's time to explore some real world solutions trying to tackle the challenge of bringing self-custody identities to life. And there's no better project to start with than ShareRing.
There are three parties to a digital identity system:
✅ The party that issues the identity (government, educational institution);
✅ The user, in control of a completely self-sovereign ShareRing Vault on their phone;
✅ The receiver of information (a business, insurer, DeFi protocol, event organizer);
Once an identity document has been uploaded and verified in the ShareRing’s Vault, the receiver can use ShareRing’s query language to generate a specific, customizable question about the user, such as “Are you over 18?”.
This question is then turned into a QR code, which the user scans and verifies that they are indeed of age.
Simple as that. 👌
For ShareRing, it is all about reducing the friction involved in these interactions while maintaining the trust, security, and ownership of the user's information.
But it doesn't stop at the user. Companies are itching to get rid of data themselves, as it turns out!
According to Tim, ShareRing has had insurers tell them that it's getting increasingly difficult to insure companies due to cybersecurity risks that come from storing so much data while database hacks continue to be pervasive.
Seeing that ShareRing, as an identity company, stores no personal data aside from a name and an email, was (positively) shocking to them.
Adoption of Self-Custody Identities
However, as is common with new and innovative technologies, the technology is only one side of the coin. By itself, a technology is useless if it's not used by anyone. So how is ShareRing making sure that their tech is actually going to be adopted?
Well, it's a mix of building a vibrant developer community by releasing early versions of the product for testing, and organizing hackathons, as well as identifying industries where there is a pressing need for digital identity solutions.
Opportunities abound, be it in digitizing government issued identities, events industry, car sharing, food and beverages, or finance.
There are endless ways to eliminate a multitude of frictions that are causing legal liabilities and financial bottlenecks. 😉
Building a sustainable business around digital identities
All of this sounds incredibly amazing and inspiring, but there are two more questions still lingering in our minds - who's paying for this, and how will the company bring in revenue?
The path that ShareRing has chosen is a sensible one: subsidizing the creation of the digital IDs for the users in order to eliminate a substantial barrier to entry which would otherwise drive them away, and charging businesses for the use of the service to present and verify the digital identities.
Going forward, Tim envisions a future where users will also be able to monetize their personal information and get paid for sharing their data, much like Brave users can earn Brave rewards for being served ads.
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These questions and more we have covered in our latest PRO Report.
Will We Hold Our Crypto and Identities in the Same Wallet?
There certainly exists a potential future where we’ll be able to use a single wallet to handle our crypto and identity needs; however, it's highly improbable.
Not due to technical reasons, but due to coordination.
As history has shown us time and time again, our civilization is quite average at agreeing to common global standards for things. Sometimes we really get it right, most times we're in the middle.
A great example is the mess that cable standards have made in the computer industry in the many decades past. Only now are we slowly converging towards the holy grail of wired connectivity: the USB-C.
But it took us a long time to get here, and it's likely that web3 will undergo the same fate, especially considering the amount of competing blockchains, applications, and protocols, and the meme-fueled forces driving their adoption.
For web3, the fact that nations, institutions, companies and organizations from different parts of the planet will choose different tech stacks at different times for their various needs means that it's unlikely we'll see a future where there is one or a couple dominating standards.
But that's ok, we can't let perfect get in the way of the good!
And, honestly, no one has any idea what the future will look like.
All we can do is to try our best to build the best possible version of the future we want to live in, and one can be damn sure that it involves a heavy dose of self-sovereign decentralized digital identities.
See you next time! 😎
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