The next iteration of the internet is so nascent that it is still being built. Web3 is based on a concept of decentralization with the promise of giving users control of their data, removing the Big Tech middlemen. Decentralization will rely on the blockchain as the enabling technology. However, in doing so, new Web3 middlemen will of course emerge. The focus of centralization will shift elsewhere in a Web3 world.
For Web3 to gain traction, not only will compelling use cases need to be developed, but so will much of the underlying infrastructure. Decentralized identities (DIDs) will be a key hurdle to overcome if Web3 is to gain any market penetration in the Web2-saturated world.
The Web3 DID space is open for competition
The best Web3 decentralized digital identity service providers will focus on user-friendliness, Layer 1 blockchain network interoperability, and will combine Web2 and Web3 identities to store information under a unique user ID. Players in this arena include Magic (formerly Formatic), .bit, and Spruce. Carv is a gaming-specific DID provider.
In June 2020, Magic raised $4 million to connect users to the Web3 ecosystem with features including single-sign-on, and sign-on with email, Google, and popular wallets such as MetaMask and WalletConnect. Singapore-based .bit uses domain names to provide chain-agnostic DIDs, and claims to have created a universal identification system in Web3, much like how emails, mobile phone numbers, and Facebook accounts function in Web2. However, unlike Web2 identifiers, .bit DIDs can also give users control over their data rather than handing use of the data over the platform on which it resides/collects it.
In April 2022, Spruce won an RFP from the Ethereum Foundation and Ethereum Name Service (ENS) to develop a standardized ‘sign-in with Ethereum’ feature that could be interoperable with Web2 and Web3 identity systems. By allowing users to log in using a cryptographic identifier, such as their Ethereum wallet address, consumers can control which elements of their own information a platform can receive when they sign in, instead of automatically surrendering their data to the platform by default. However, regaining power over data by way of creating a DID often costs a fee, unlike most email addresses or social media accounts, which are free to use.
Digital identities are seamless in Web2
Web2 uses digital identifiers such as email, Gmail, or mobile phone numbers to sign into many applications. In doing so, platforms collect data that can then be used to optimize the platform and, to the annoyance of many Web3 proponents, be shared with other platforms to optimize themselves, as well as being sold to digital advertisers. Though the monetization of user data will change as we move past the era of cookies, cross-platform data sharing has its uses. Not only does third-party data sharing mean that people see content and advertising that is relevant to them and their online personas, but they also roam around Web2 seamlessly. Obviously, in a utopian, open, trustless, permissionless Web3, this cross-platform data sharing that relies on centralized infrastructure providers—which have become somewhat akin to utilities—is not in keeping with the decentralized ideology.
US Tariffs are shifting - will you react or anticipate?
Don’t let policy changes catch you off guard. Stay proactive with real-time data and expert analysis.
By GlobalDataWeb3 needs user-friendly digital identity in a Web2 world
Though there is a lot of hype and noise around Web3 on Twitter, Discord, and other corners of the internet—(de)centralized or otherwise—user adoption is low. With many decentralized apps (dApps) registering just hundreds of users, it is not easy to convince investors and developers of the need for Web3 decentralized digital identities. However, if Web3 does take off and for it to gain traction in the Web2 world, DIDs will form a critical cornerstone in lowering the barrier to entry.
Blockchain-based identity systems are the gateway to user-facing apps in the decentralized Web3 space. Currently, for dApps users to create an account and log in, it may be quite a convoluted process, including remembering passwords, cryptographic identifier addresses (which may be 35 characters long), and secret phrases. At the moment, this is not attractive compared to the frictionless Web2.
However, it is worth remembering that Web2 applications also require you to remember your email address, telephone number, password, memorable word for password recovery, username, and maybe even your address. Web3 is immature, and it is not a surprise that challenges still exist and act as a barrier to widespread adoption. There is an understanding gap between Web3-literate users and the rest of us, as was the case with early Web1 and Web2.
