Great read from @joel_john95 on crypto-powered identities for the internet!

LARPing is a baggage and drag from the web2 world, let's leave that behind as we build for what's next 👾

The next wave of users in Web3 will not be anonymous wallets. They will be using primitives for identity verification without even knowing it. 

Market incentives and regulations would slowly nudge founders towards embracing primitives that verify who their users are. 

Here's a brief note on Identity. 

The internet evolved with the forms of identity that existed on it. The simplest primitives - IP addresses and e-mails existed for decades. But when commerce went online, we needed better tools. PayPal, eBay and Amazon would have been crippled if they could not lean back on some form of state-issued identification. Commerce scales, when you know who the counterparty is. Consequences deter bad action for the vast majority of players in a free market. 

So if you look at how much information is gathered on users, it is often directly in proportion to the consequences of their actions. Want to send an e-mail? Sure, sign up. Wish to transact through traditional rails? You will have to give more details. At the absolute end of that spectrum is marriage and voting. You want to gather as much information on a person as you can before committing to being with their partner legally. A democracy falters if there is massive voter fraud.  

How does this apply to Web3? I think, applications will increasingly want to know more about their users. And the suite of tools in crypto have evolved to a point where that can happen. A very simple mechanism of identifying users in the past has been tracking wallets that hold certain assets. The social graph of assets that require (i) capital or (ii) expertise has been highly valued in the past because of the ease with which you can validate their value. (Okay that sounds like bs, let me explain)

 Any app could directly offer access to these users with the understanding that they either had the wealth to acquire the NFT or the skill/alpha needed to mint the NFT for a pittance. 

Think of it like this.

1. Nansen - Lets you see who else owns an asset, and for how long , thereby giving some form of meaningful validation for co-ownership. A wallet address can be considered 'smart" if it was early to a trade, or held an asset long enough. 

2. DegenScore - Takes it one step further by running algorithms across a user's wallet activities to give a standardised score. Users can then have access to a curated list of applications that offers them perks for using it.

Both applications identify and curate users on basis of their on-chain actions. The need for such applications become even more important when you consider that (i) protocols have now begun geo-fencing regions and (ii) sybil attacks are beginning to cost protocols millions of dollars. 

A potential solution that merges real-life identity and on-chain ownership that is seeing increasing amounts of traction is Gitcoin's passport. They offer what is called "stamps" on basis of the number of identity linked elements you tie to your wallet. You can link your Facebook address, LinkedIn Account or even state issued identity to a wallet. 

Why does this matter? It has been built for Gitcoin's own problem. Quadratic funding requires knowing that a person is not spinning up multiple wallets to rank higher. But the other use case is with DAOs. In systems that weigh individuals equally (instead of token balances), validating identity through Gitcoin's passport helps. For the technically inclined - Gitcoin initially verifies these things through their servers. But a user could lean towards Ethereum Attestation Service (EAS) to get the stamps in their wallets.

Soul Bound Tokens (SBTs) are an alternative approach to building identity. Brian Armstrong (from Coinbase) recently added a SBT-based LinkedIn to his list of request for pitches. What the hell even are SBTs? Think of it as NFTs that can't be transferred. The core premise is that an organisation you worked with could issue a SBT that can be accepted by a wallet you control. Colleagues who worked at the same organisation could attest to your working there. In such a model (unlike LinkedIn Reviews), an attestation from a colleague would require they also own the SBT token (from the organisation) to be able to attest your work. 

Why does this matter? It disrupts the relationship between LinkedIn, organisations (issuers) and users. An organisation could directly validate the employment of hundreds of employees without requiring a centralised platform that cannot validate an employee's claim in the middle. Employees on the other hand, could validate their expertise without sending in certificates each time. Naturally, such a system works only if the network effects of hundreds of organisations issuing SBTs occur. Which is partly what makes it quite challenging. 

SBTs- are a very early stage primitive and we don't exactly know if they may take off. One of the organisations building bridges between the on-chain world and IRL identity is zkPass. Their alpha launched in June of this year, lets a user validate claims across bank accounts, state issued identity, centralised exchanges and so on with the use of a chrome extension. They use zero knowledge proofs, so if a third party product (like an options project) wanted to specifically open up access only to traders that had a balance north of $100k, it could be used today. Instead of a person exporting the entirety of their exchange transactions, such a product could be used for undercollateralised lending, with the caveat that a lender would need to validate claims every day. 

Bit too hypothetical, I know. The market for undercollateralised lending kind of evaporated last year with the 3AC and FTX fallout. But a different place this could be used is for the creation of a global-scale lending market focused on SMEs.  Present-day undercollateralised lending markets in crypto focused on RWA have a data problem. They don't have the bridges to validate claims (of balance sheets, revenue and overall health of a firm) in real time. Using on-chain identity primitives could help bridge the gap between local need for capital and global aspirations for credit. 

In the model shown above, I presume an efficient market of underwriters could use cryptographic primitives to validate credit worthiness, then assign a score that could be queried by a third party aggregator (or marketplace) for loans. The marketplace in turn could source liquidity from institutional investors or fintech apps with existing deposits. The advantage in such a model is the frequency with which data can be queried, as long as the transactions done by cooperatives are digital in nature. 

Between Solana's integration of stablecoins and Moneygram launching a native wallet for payments, it is safe to say that the lines between what happens on-chain and traditional networks are blurring. There is an opportunity subset for building a new generation of fintech apps there. Identity primitives will need to evolve and be embraced for that to occur. 

Does this go against what crypto stands for? That's an ideological question I don't have the answer for. In my understanding, such a model puts the user in charge of their identity. DIDs, SBTs, Verified credentials are all at their early stages and we have not seen them scale massively just yet. There will be a steep learning curve before meaningful applications can be built on them. But much like eBay, Paypal and Amazon in the late 1990s, building rails for faster, more efficient movement of money could prove to be a big opportunity. 

I wrote a long-form with considerably more nuances on the matter, linked below.