WEB 3.0 COULD REWRITE THE RULES OF USER IDENTITY
- One of the new frontlines in the war for control over how people generate money on the web 3 is the concept of identity.
- Many suggest that web3 offers the chance to “democratize” the internet experience, gives people back control over their data, and facilitates mass customization.
- The way online identity and asset storage have been handled in the past may alter as a result of Web3’s use of wallets and other identity platforms.
The third generation of the Internet, often known as Web3, is comprised of a number of technologies that have advanced quickly in recent years. The ecosystem today includes tens of thousands of businesses and more than $80 billion in startup funding from investors including venture capitalists, hedge funds, private equity, and other investors. A number of significant businesses from many sectors, including JPMorgan, Nike, Google, and Disney, have started to consider how web3 will affect their operations and the potential advantages this new technology may provide.
Although web3 is still in its infancy and some of the impacts that have been promised are probably overstated, the technology might be revolutionary if even a small portion of its potential is realized. The most experimental sector has been the financial services sector, which has developed tokenized assets, payment systems, and settlement infrastructure. The key uses for web3 will, however, reside firmly in the technology sector as it develops.
The idea of identity is one of the new battlegrounds that will determine future profit margins in web3. The ability to democratize the online experience, allow people to retake ownership of their data, and pave the way for mass customization of each user’s experience — all of which are seen by many as web3’s greatest opportunities — are all centered on identity. Many other technologies, like artificial intelligence and machine learning, that will be necessary to manage the proliferation and complexity of data required to service and track customers, will be significantly impacted by Web3’s approach to identity. Only if there are effective, simple ways to disclose only the appropriate data in the appropriate circumstances will this potential be utilized.
Digital web3 wallets are anticipated to play a significant part in the competition between businesses to define the future of identification online. These wallets serve as unified bank accounts and digital passports, and by enabling universal sign-in, they have the potential to transform the way consumers interact with applications. What before required a log-in particular to a website could soon only require selecting “connect wallet.” Many supporters of web3 believe that this innovative method of operating will provide users greater direct ownership and control over their data and digital goods.
Web3 key concepts
We’ll start by going over some of the fundamentals of Web3, a group of technologies that aim to build a more decentralized and comprehensible Internet.
Blockchains, smart contracts, and tokens are the fundamental building blocks of web 3. (fungible and nonfungible). Blockchains are publicly accessible, networked platforms for computation that are controlled by the community. With the development of Ethereum in 2014, blockchains were transformed into decentralized computing platforms that could run smart contracts when specific conditions were satisfied. Finally, tokens enable the digital representation of value, whether they are fungible — that is, native to the digital world — or nonfungible — that is, peculiar to a given asset. Together, these components shape the way web3 views open, decentralized, and public infrastructure. This strategy enables “compounding software development,” just as open source software, by releasing the potential of composability. Decentralized applications, DeFi (decentralized finance), open digital wallets, tokens, decentralized autonomous organizations (DAOs), and open metaverses are just a few of the basic web3 applications that are derived from these building blocks.
Although web3 and the metaverse are separate ideas with many related technology, web3 principles can be included into the design of the metaverse (see Figure 2). Decentralized exchanges like Uniswap, digital currencies like Circle’s USDC, and OpenSea’s nonfungible token (NFT) market are examples of well-known web3 products. Virtual worlds are widely used in games like Roblox and on platforms like Horizon Worlds from Meta. Where the two ideas converge, “open metaverses” built on web3 principles, such as The Sandbox or Otherside, set themselves apart from metaverses that aren’t always web3-enabled and might be closed or built on more traditional infrastructure. Wherever a metaverse is at least somewhat open, identity is crucial. Users’ friction is reduced by consistent personhood and asset transferability; if a virtual skin exists in one metaverse, you’ll want to be able to utilize it in another.
Growth of web3
Over the past ten years, what began as white papers and Internet forums has developed into a complete ecosystem. Through June 2022, more than 4,000 businesses raised more than $80 billion in total across the various web3 segments, according to Bain’s web3 and digital asset database.
Although market turbulence has clearly altered the web3 investment environment over the past few months, momentum is still present across all sectors, with numerous businesses openly announcing new initiatives, including Meta, Visa, Fidelity, Google, Mercado Libre, and Breitling.
The wallet and web3 identity
The use of wallets and other identification platforms by web3 might potentially overturn the established method of online identity and asset storage for some of the top technological companies in the world. A blockchain ledger account is referred to as a wallet. Popular wallet apps and user interface layers access your assets’ current ledger, but they don’t necessarily store them exclusively on a single platform, meaning the platform doesn’t have custody of them.
Take a look at a greatly simplified financial analogy. They both accept that you have $1,500 in total and that the banks are only a service layer on top of your assets rather than owning $1,000 in Bank A and $500 in Bank B. Even if you went to a bank, it would be able to see that you have $1,500 accessible right away. The potential for streamlined asset transfers and interoperability in this illustration demonstrates how this kind of decentralized infrastructure upends conventional business structures.
Wallets will have begun to develop into much more than merely digital accounts by the year 2020. Users started interacting with web3 applications as decentralized applications proliferated, and wallets played a significant role in this. For instance, you might just click “connect wallet” to sign up for the well-known decentralized exchange Uniswap. No account needs to be set up. Platforms can view the digital assets you own by connecting your wallet and offer access or authorization depending on a token you hold, such as an NFT ticket you might have acquired through attending an event. In the hypothetical bank, if you “link wallet” at Bank C, based on your activity there and elsewhere, it might provide you with advantageous loan refinancing terms for your debt with Bank A.
The rate of innovation has kept accelerating, and businesses are developing customized solutions that hide wallet complexity while maintaining key advantages. Here are three illustrations.
- Digital assets and goods: You could use a wallet to move different kinds of digital products between platforms, similar to the bank example. Benefits that could endanger client stickiness and current business models are made possible by wallets’ capacity to foster interoperability and permit users to move assets freely.
- Credentials and access: Wallets have the power to challenge various access and identity management systems. Tokens are used, for instance, by businesses like Civic to signify specific regulatory requirements. Other web3 startups, like Mintgate, are concentrating more on content-related access. This may allow wallet users over the age of 21 to prove their age and purchase alcohol through a delivery service without ever disclosing their license. Through these systems, users can visit forums or recreational sections behind a gate with specified tokens (such an NFT ticket) or loyalty points.
- Data and content: Even if the process of creating material on the Internet today is decentralized, its distribution is frequently controlled on large platforms. By shifting data and content rights away from platforms and toward users, wallet-related businesses want to upend this ownership model. To create social graphs where all of your content — including likes, comments, and other information — is decentralized and accessible to you, businesses like Lens Protocol and Farcaster are developing. In this scenario, social media networks would just read social graph data, allowing you to move your content and social interactions freely between platforms.
These are only a few of the areas where web3 may transform digital identity; further research and development will be required for years to come.
Implications for executives today
Web3 can’t be disregarded any longer. Ecosystem health is good. It has significant money and established disruption aims. Although this debate of identities and wallets is particularly pertinent for specific tech platforms, it also illustrates the wider risk and potential that web3 poses when innovation questions accepted notions of who owns what and how to create defendable profit pools. All businesses need to be aware of potential future developments that could have an impact on their current core markets as well as those that could present opportunities.
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