The Conundrum of Unconditional Trust: The Centralizing Factor of Identity Management in Web3

Despite Web3's promise of "trustless" and "decentralization", this may be more of an elusive dream than a real possibility.

**Written by: **Karim Halabi

Compilation: Deep Tide TechFlow

Why can our real-world identities be trusted unconditionally? Despite Web3's promise of "trustless" and "decentralization," this may be more of an elusive dream than a real possibility. Because there are many centralizing factors, the most important of which is the management of our real-life identities. Currently, we cannot use them in encrypted networks in a truly trustless manner.

In this article, this perspective will be elaborated, highlighting some potential solutions.

Let's imagine the open metaverse as a theme park. We use tokens to access the park's fun and exciting rides and issue new tokens as new rides are created. Both creation and consumption of value are permissionless, and rides – if built properly – cannot be destroyed by anyone, making our interactions within theme parks independent of trust.

Some rides may cost more tokens than we currently have, so we can perform tasks we are good at (like making and selling marshmallows), make enough marshmallow tokens ($CFT, anyone can), and Exchange them for the tokens needed for the rides we crave.

Currently, anyone can access any ride and their counterparty, whether it is the operator of the ride or the ride itself, regardless of who or what you are. You may be a human or a trader.

The problem is, many rides quickly need to know which players are humans and which are robots. This may be to optimize the user experience for specific players, but is more likely a regulatory and compliance obligation.

This is not something to be feared - linking our off-chain identities to our public addresses is not a bad thing and can have many benefits - however, what we must be wary of is how this link is made.

The Metaverse and Our Identity

DeFi users today enjoy access to a parallel financial system that is completely permissionless and anonymous, but only after taking an introductory tutorial on cryptocurrencies. This onboarding process usually involves buying cryptocurrencies on a centralized exchange. To do this, one must pass strict KYC and AML screening and connect their designated bank accounts. The centralized gateway to the decentralized world.

As Moxie points out, true decentralization is still a vision for now. Much of the middleware and backends we depend on are maintained by centralized institutions. Our reliance on Infura, Alchemy, and AWS is proof.

However, while the Metaverse is gradually becoming more decentralized thanks to projects like Ocean Protocol and DIA, access points are still as centralized as ever and likely to remain that way. However, the greatest centralizing element comes not from CEXs and other fiat-to-crypto onramps, but from our digital identities.

First let's distinguish between two types of digital identities:

• Natively generated on-chain identities;
• Off-chain identity.

An example of a natively generated on-chain identity could be our public address - which provides value (by being a node in an IoT network or lending its computing chips for distributed computing) and is rewarded in the form of tokens. These tokens accumulate to its public address: its identity within this network.

A machine has chips and wires inside it—vital technological components that allow it to interact with other devices that also have chips and wires. When things already have the ability to interact in a blockchain network, digital identities associated with them are easier to create. However, humans don’t have the equivalent of chips and wires that allow us to interact natively in blockchain networks — at least not yet. That's why we have off-chain identity in the first place.

These are often represented by government-issued ID, our physical home address, or any type of biometric information. Since these are not crypto-native, they must be brought on-chain. Here, it is important to focus on how to verify this information and bring it to the blockchain.

When it comes to bringing this kind of information and identifiers on-chain, it's very difficult to do it in a way that's unconditionally trusted. The reason public networks (like Bitcoin) are trustless is that anyone can verify anything by looking at the chain, and all actions and interactions are publicly recorded; permanently stored in blocks.

Off-chain objects or events are more difficult to audit properly. For example, in order to trustlessly prove that a person's eyes are a certain color, every network participant must have the ability and freedom to come see you, personally verify and collectively agree that your eyes are blue.

This is why we rely on trusted central parties, such as government agencies, as official sources of truth.

• How do we know this person can drive? Because an agency has tested them and issued a driver's license.
• How do we know this license means they can drive? Because we believe in that institution.
• Why do we have to trust them? Because they participated in the driving test.

At the end of the day, these trusted entities are crucial - they enable human society itself to grow, expand, and interact, in increasing numbers, to achieve larger and larger goals.

For these reasons, centralized institutions will always exist to connect our off-chain identities to our on-chain identities.

Whenever an aspect of the physics world has to be validated for use in the open metaverse, it has to go through a central party. So, at the intersection of these two worlds, the assumption of trust will always exist. They can be trusted minimally, but they are never truly trustless.

Why is this important?

"He who can destroy a thing can control a thing"

—Paul Atreides

When a central authority verifies some form of identity, such as a driver's license, they are also maintaining its integrity. If the driver's license is revoked for any reason, the next time I get pulled over and my credentials are checked against the list of verified identities, they will be marked as invalid.

If those identities are a prerequisite to participating in certain networks, then the person who maintains the integrity of your identity will have complete control over all aspects of your life related to those networks. Ultimately, it's a question of censorship resistance and ideology, and whether we think central powers should retain the right to assert our digital identities.

The way the metaverse itself works might be decentralized, but if the portal is tightly controlled, is it truly decentralized?

Even though we could use zk proofs to protect our privacy (allowing us to prove something without revealing any personal information), if an official body decides to revoke my driver's license, it will still appear invalid.

In the near future, a verified form of identity issued by a central entity may be a prerequisite for interacting with many protocols. This could lead to a split where we would have a permissioned metaverse and meta-finance, and DeFi as we know it today, which might be called “DarkFi” or something like that.

To reiterate the importance and implications of this point - verifying our identities at the hands of central powers will lead to a digital world with even tighter controls and permissions than the world we know today.

Optimistic looking ahead

While the scenario outlined above might be rather dystopian, not everything is bleak. In fact, there's more than one way to get into a theme park. Going through the main gate and security check is an option. Of course, a simpler option might give us a better user experience and favorable terms, such as an undercollateralized loan, but it's still an option.

A decentralized, anonymous identity can be created using our on-chain history. Have you used a protocol before? Have you ever been liquidated? Do you have a specific POAP or NFT?

Natively generated on-chain identifiers can provide us with a universal identity that we fully control. One can contrast this type of identity with the type of central verification as the difference between Bitcoin and a CBDC.

Projects like BrightID and Union are building solutions that empower our digital citizens to create and own identities that are not only digital and usable in an open metaverse, but more sovereign.

BrightID takes an ingenious approach of using humans in reality to verify and co-verify our existence - this helps differentiate humans from robots and allows us to create an identity whose integrity does not depend on a single party but rather is dependent on a network.

As more and more aspects of our lives move on-chain, the question of decentralized identity management will become increasingly important. Public blockchains may be the foundation of digital sovereign utopias, but they may also lead to digital dystopias. We have a responsibility to vote with our actions; to choose networks that align with our ideals and to help realize the future we want to live in.