Web3 Identity: Beginner's Guide 2022

Published
December 6, 2022
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Since 2017, Dock 's expert team has been building leading edge decentralized digital identity technology that can connect organizations and individuals to Web3, the next generation of the internet. In this beginner's guide to Web3 identity, we'll explain what it is, its benefits, and how it works.

TL;DR

  • Web3 is a decentralized web that gives users more control over their data and is the third generation of the internet
  • Web3 identity is a system that allows users to manage their online identities in a more secure and efficient way without relying on a central authority 
  • Decentralized identifiers (DIDs) are globally unique identifiers that can be stored on a blockchain and play an essential role in creating users’ Web3 identity
  • Web3 identity provides many benefits to organizations and individuals over traditional identity management systems
  • There are a growing number of Web3 identity use cases including age verification for entertainment sites and proof of ownership without revealing a crypto wallet’s details

What Is Web3 Identity and Why Do We Need It?

Web1, Web2, and Web3 login comparisons

Web3 identity is a system that allows users to manage their digital identities in a decentralized way. These are the key features of Web3 identity:

  • Users can control their own data and information and they are not reliant on centralized institutions such as governments or corporations
  • Built on the principles of privacy, security, and freedom
  • Users can create digital identities that are linked to their real-world identities or choose to remain anonymous

This system has the potential to revolutionize the way we interact with the internet. While Web3 identity technology is still in its early stages, it has already attracted a lot of attention from companies and developers.

Problems With the Current Dominant Digital Identity Management Systems

Hacker

A digital identity is the body of information online about an individual, organization, or electronic device. It allows you to authenticate yourself and prove that you are who you say you are so you can access the things you want and need in the digital world. 

These are just a few of many examples of information that make up your digital identity:

  • Usernames
  • Identifier used to sign documents electronically 
  • Social media history
  • Browsing history

Currently, we are dominantly using centralized or federated identity management systems to manage our online identity. A centralized identity management system is when an organization stores and manages all digital identities in one centralized location such as a physical server or in the cloud. Examples of centralized digital identifiers include emails, usernames, and passwords.

Common problems of centralized identity management systems:

  • Centralized storage systems offer a single point of entry for hackers to cause data breaches and access a lot of user personal data at once 
  • Users have to manage many separate logins for every website and app
  • Lack of privacy as personal data can be accessed by institutions that may also track people’s online activity 
  • Less control of how personal data is stored, used, and shared

A federated identity system is a system that allows users to access multiple applications with a single set of credentials such as logging in with a Facebook or Google account. This is also referred to as single sign-on (SSO). 

While this system creates some conveniences by making it more efficient for users to access websites and apps without creating a new account, these are some of the common problems that result from using federated identity management systems:

  • Because federated systems connect multiple data sources, there is a greater chance of data breaches
  • User information must be shared with third parties and depending on how companies share, process, and store user information, they can can negatively affect the safety and privacy of users because not all providers conform to the same security standards

Web3 identity technology can solve many of these problems because of these features:. 

  • Fully owned and controlled by the user (organization or individual)
  • Much more secure than traditional digital identity management systems because data is stored in a decentralized way on user devices rather than centralized storage systems, making it much harder for hackers to access sensitive information
  • Provides more privacy because you can verify yourself without revealing personal information like your name or address
  • Offers a much better user experience because people can securely log into websites and apps with a single set of credentials rather than managing so many accounts

What Is Web3 in Simple Terms?

Web3 identity technology

Before diving deeper into Web3 identity, it’s important to understand the key features of Web3. Web3 is the third generation of the internet that has a new set of technologies and standards that are designed to make the web more open, decentralized, and secure. 

Web3 enables users to:

  • Have more control over their online identity and data without relying on centralized providers like Facebook and Google
  • Log into websites and applications securely while preserving their privacy
  • Store their data on their own devices rather than centralized servers to give them more control over their online experience

A growing number of companies are investing in Web3 technologies for these reasons:

  • Uses decentralized networks and cryptography to create more secure, private, and tamper-proof interactions between users
  • Businesses can verify the authenticity of online users, manage digital assets more securely, and communicate more privately 
  • It’s more efficient than traditional web process which can help businesses save time and money by automating processes and eliminating the need for intermediaries
  • Creates a more transparent and secure way of doing business which can enhance public trust and the company’s reputation

Differences Between Web1, Web2, and Web3

Web1, Web2, and Web3 comparisons

Here are the key features of each evolution of the internet:

Web1 Web2 Web3
Users only read static content on the web that are connected through hyperlinks Users read and create content on social media platforms Users read, write, and own content
No user-to server communication Applications and services are dominantly operated by centralized authorities The ownership and delivery of applications and services are decentralized
Content is from a server’s filesystem Relational database management system (provides access to data points that relate to one another) Blockchain database
Payments are made in fiat currency Payments are made with digital currencies
Use of social networks like Facebook Metaverse worlds allow people to interact in virtual and augmented reality

How Does Web3 Identity Work?

With Web1 and Web2, we often used centralized digital identifiers like emails, usernames, passwords, and other sensitive information to access websites and apps. But these are some of the common problems that often result from using these identifiers:

  • Frequent data breaches on centralized data storage systems 
  • Companies often control your data and many of them sell, track, or misuse it
  • Service providers can remove your access to their platform anytime
  • You often have little to no control and knowledge over how your data is used, accessed, or shared

Thankfully, Web3 identity technology can solve many of these problems, particularly decentralized identifiers, Verifiable Credentials, and blockchain.

Decentralized Identifiers (DIDs)

Web3 identity uses decentralized identifiers (DIDs)

Decentralized identifiers are globally unique, permanent, and verifiable identifiers that can be stored on a blockchain and they are the foundation of Web3 identity. 

Key features of DIDs:

  • Gives users (organizations and individuals) full control and ownership of their digital identity that is used for all of their interactions with websites and applications
  • No party can take away users’ DIDs
  • Cannot be tampered with 
  • Anyone can create a DID and have as many DIDs as they want for different purposes
  • Data is only shared when you give consent and you decide what information to share and with whom
  • Provides more privacy and security online which helps prevent fraud and identity theft
  • Data is secured with cryptographic proofs like digital signatures

Here is an example of a Dock DID:

You can see the Dock Wallet or Dock Certs platform to create, manage, own, and control your DIDs. 

Verifiable Credentials

Verifiable Credentials are a digital, cryptographically secured version of physical and digital credentials that people can present to organizations that need them for verification.

Examples of identity documents that can be issued as Verifiable Credentials:

  • Employee certificates that can be used to prove their identity and access to company systems
  • Digital passports for citizens
  • Driver’s licenses
  • Membership certification for professional organizations such as marketing, real estate, business, and human resources

Blockchain

A blockchain is a digital record of transactions. It is a decentralized, distributed database that can be used to record transactions between multiple parties in a secure, transparent, and immutable way.

Blockchain plays an important role in Web3 identity. The decentralized nature of blockchain means that there is no central authority controlling Web3 identity. Instead, blockchain allows users to completely manage their own identity, giving them more control over their personal data.

Blockchain technology makes it harder for fraudsters to steal identities because in comparison to centralized storage systems where a hacker just needs to break into one system to access thousands of records to steal their identities, by allowing users to store their own data in a decentralized way, they would have to hack thousands of users one by one, which is much more difficult. 

Web3 Identity Is Self-Sovereign

Web3 identity is Self-Sovereign Identity

Web3 is a decentralized internet that enables Self-Sovereign Identity. In contrast to the current system where institutions largely control our data, Self-Sovereign Identity is a model for digital identity management that gives individuals the ability to fully control and own their data. In other words, you are the boss of your own identity that can be used to access services and products online. 

Web3 Identity Wallet

Web3 identity wallet credentials

A Web3 identity wallet is a type of application that can be used to store data about an individual's identity. Unlike traditional digital wallets that are controlled by central authorities, Web3 identity wallets are decentralized and can be controlled by the individual. 

In the past, our online identities have dominantly been tied to centralized platforms like Facebook or Google. But with a decentralized identity wallet, you're in control of your own data. 

How Do Web3 Identity Wallets Work?

Web3 identity user verification

By using DIDs and Verifiable Credentials, your Web3 identity wallet can securely connect you to the decentralized applications (dApps) and services you use. These types of wallets are more secure than traditional digital identity wallets because they are not subject to the same risks of centralized databases. So whether you're logging into a dApp or sharing your medical records, you can be sure that your data is safe and under your control.

Dock Wallet: Web3 Identity Wallet

The Dock Wallet allows users to fully own, control, and manage their Web3 identity.  

Dock Wallet Benefits:

  • Easily create and manage DIDs
  • Securely store Verifiable Credentials in the wallet and can take them anywhere with the phone
  • Verifiable Credentials are verifiable within seconds using the Dock blockchain
  • Dock uses state-of-the-art cryptography to make every credential resistant to fraud
  • Send, manage, and receive Dock tokens securely
  • Control the private key and create a backup of wallet data in case the device gets lost, damaged, or stolen

Benefits of Web3 Identity Over Traditional Identity Management Systems

These are the various benefits for organizations and individuals:

Organizations

With the rise of digital technologies, organizations are increasingly relying on web-based platforms to carry out their operations. This shift has come with a need for faster, safer, and more private methods of verification and authentication. Traditional methods, such as using passwords or Social Security numbers, are no longer as secure as they once were. Hackers can easily obtain this information, and once they have it, they can wreak havoc on an organization's systems. 

Here are the benefits of using Web3 identity technologies for organizations:

Collecting and storing less user data reduces the chances of data breaches

Organizations can collect and store less data with Web3 identity systems because personal data is stored on users’ devices rather than centralized storage systems. They can also instantly verify the authenticity of user data without the need to store it. By using a decentralized network, organizations can reduce their overhead costs and free up more resources to invest in other areas.

Avoid a single point of failure

A decentralized identity management system can maintain user access and reduce the risk of service interruptions. Because centralized identity management systems often have a single point of failure, it can interrupt user access to a website or app. But with a decentralized identity management system, a point of failure won’t necessarily interrupt the website and app for other users because user data is always available for verification. 

Data security 

The data stored in the Web3 identity wallet is secured with cryptography. Dock does not store any Verifiable Credential data on the blockchain. Only DIDs are stored on the blockchain in order to verify the authenticity of credential issuers and enable secure data exchange between identity holders, credential issuers (e.g. university or bank), and verifiers (e.g. employer or government department).

Enhance trust from customers, investors, the public, and partners

Organizations can improve their reputation by collecting less sensitive user data and providing a greater sense of security for their customers. 

Data accuracy in verification 

Organizations can be sure that the information they receive is accurate, up to date, and that users are who they say they are because Verifiable Credentials are fraud-proof and instantly verifiable. 

More efficient customer onboarding

Users will have easy access to services without the need to sign up with a tedious process, which eliminates frictions during onboarding. 

Individuals

Traditional identity solutions are often insecure, provide little user privacy, and are difficult to manage. They can also be slow and inconvenient especially when you need to access them from multiple devices. 

These are the benefits for Web3 identity solutions for individuals:

Easy access

Access your Web3 identity from any device or location with an internet connection through a wallet app.

Enhanced security 

More secure and private than traditional methods because data will be stored on users’ devices rather than centralized servers, making it much harder for hackers to gain access to large amounts of user data. 

More privacy

Personal data is not stored on the blockchain and users decide how and what information they want to share with privacy-preserving technology such as Selective Disclosure (sharing only pieces of information you choose) and Zero-Knowledge Proofs (proving a claim without revealing the details). Information is shared only with explicit user consent.

Enhances user experience

Users can create a DID to authenticate across multiple applications rather than managing so many logins the way they have to with centralized systems. This greatly simplifies the login process.

Control of data

Information is only shared when users give explicit permission. Organizations can’t access data without people’s consent.

Portable identity 

Users will conveniently be able to take their identities and data with them from one service to another. 

Examples of Web3 Identity

Web3 identity

In addition to DIDs and Verifiable Credentials, these are other examples of Web3 identity:

NFTs as Web3 Identity

A non-fungible token (NFT) is a digital asset that represents ownership of something, whether it is digital or a real object in the physical world, and can be traded. Once an NFT is created, it is stored and secured on the blockchain. While the more well-known NFT use cases include buying, trading, and selling digital art, NFTs can represent anything like identity, a house, and intellectual property. 

Here are a few ways that NFTs are being used as Web3 identity:

  • Many people are using NFTs as their social media profile pictures (e.g. Twitter) as a popular way of showing NFT ownership 
  • An NFT project (e.g. DAO) could issue an SBT to wallets to people who are considered OGs (people who were early in a project) to enhance their reputation
  • When people have their digital identities as NFTs, any items they own like avatars, digital apparel, and other items can move with their NFT identity across platforms
  • NFTs can interact with identity providers through authentication

Web3 Domains?

A Web3 domain is a unique address on the internet that is powered by blockchain technology and a popular type of Web3 identity. They convert long complex strings of characters into a human readable address such as .eth, .crypto, or .dao. Users can create their own personalized names that can be used to access websites, decentralized applications (dApps), and send and receive payments.   

Examples of Web3 domains:

  • Melvancouver.eth
  • sandybiz.nft
  • Blockenized.app
  • hodl4life.bitcoin

Ethereum Name Service (ENS) is one of the most popular Web3 domain managers.

Ethereum Name Service (ENS)

The Ethereum Name Service is a Web3 domain manager that provides a secure and decentralized way to address resources and people on the internet. With ENS, users can register domains that are easy to remember and look like traditional web addresses. By providing a user-friendly naming system, ENS eliminates the need for long, complicated addresses like this: 0x58Bdb34b3096c2c4f7B0a9902f1722feaeF0341A. 

ENS works similarly to the conventional Domain Name System (DNS) used for centralized websites that converts long complex data strings with addresses that people can read. For example, people go to www.dock.com instead of typing a long and complex IP address like 2301:4440:5850::04422.

For example, instead of having to send ether to 0x4cbe58c50480a0437df7e0a23355426005d5a37f, you could simply send it to myname.eth. In addition to making it easier to send payments and interact with smart contracts, ENS also allows users to map their Web3 identity (such as an ENS name or an Ethereum address) to a decentralized web application. This makes it possible for users to access dApps without having to remember or type in long strings of characters.  

Soulbound Tokens (SBTs)

Soulbound tokens are digital identity tokens that represent the traits, features, and achievements of an individual or organization.

Key features of Soulbound tokens

  • Unlike other types of tokens, they can’t be traded or sold on exchanges
  • Enable users to build a verifiable digital Web3 reputation based on their past experiences, achievements, and actions

How Soulbound tokens work

A Soul could be a credential issuer such as a university, employer, or professional association. They would issue SBTs to recipients and each SBT would store the credential. 

Examples of how a Soulbound token can be used: 

  • A KYC company would issue an SBT to someone who passes an identity verification check. This SBT does not contain personal data and is a mere indicator that the wallet that possesses it has passed KYC. The recipient would hold the SBT in their wallet and use it to authenticate themselves to speed up the onboarding process when they sign up for other financial platforms. 
  • If a Web3 company wants to hire blockchain developers who completed specific programs, SBTs would enable them to verify candidates for consideration.

Dock’s Web3 ID

Web3 ID

Dock’s Web3 ID is a blockchain-based authentication and authorization system that puts user privacy first. Developers can grant access and verify end-user eligibility by requesting private data from users' identity wallet apps and always with the users’ consent.

Web3 ID allows the user to:

  • Create as many DIDs as they want for different purposes (e.g. online purchases, professional certifications, gaming etc.). They can even use a different DID for each website or application they connect with, preventing user tracking and data correlation.
  • Decide which data to share using privacy-preserving techniques like Selective Disclosure and Zero-Knowledge Proofs.

Web3 Identity Use Cases

Web3 Identity will be used in the Metaverse.

There are many ways Web3 identity can be applied. Here are a few examples:

  • Create tamper-proof digital documents, certificates, and credentials
  • Age verification for Web3 gaming, gambling, and entertainment sites to ensure users are at least 18 years or older without disclosing their birth date or any other private information
  • Verify eligibility to enter the Metaverse 
  • Proof of token ownership without revealing a wallet’s content   
  • Prove who created, owned, and currently owns an NFT through its entire lifecycle

Conclusion

Web3 identity is a new way of verifying and interacting with the internet. It has many benefits for organizations and individuals over traditional methods. As adoption of Web3 technologies grows and users are given more control over their online identities, it has the potential to create a fairer, more secure and private internet for everyone. 

Decentralized identifiers are essential for Web3 identity by providing a way to verify your identity without relying on centralized institutions. Get Dock’s Web3 identity wallet to conveniently create, manage, own, and control your Web3 identity. 

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About Dock

Dock is a Verifiable Credentials company that provides Dock Certs, a user-friendly, no-code platform, and developer solutions that enable organizations to issue, manage and verify fraud-proof credentials efficiently, securely, and at a lower cost. Dock enables organizations and individuals to create and share verified data.

“We’ve looked at a lot of the systems that allow you to issue DIDs and VCs and generally what we’ve found is that Dock is far easier to use than many of the existing tools out there. It can deploy very quickly and it will be very easy for our developers to use the tool.”
Amber Hartley
Chief Strategy Officer, BurstlQ

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