How does EthSign connect the Web2 and Web3 worlds through electronic agreement signatures?

Author: Nianqing, Chain Catcher

Last week, the Web3 infrastructure company and electronic protocol signing platform ETHSign completed a $12 million seed round financing. This round was led by Sequoia India and Mirana Ventures, with participation from Amber Group, Circle Ventures, NGC Ventures, HashKey Group, and Matrixport. Angel investors Balaji Srinivasan, Tegan Kline (The Graph), Sandeep Nailwal (Polygon), Sid Powell (Maple Finance), and Thomas Vu (Riot Games) also participated in the investment.

EthSign allows users to electronically sign and manage agreements, enabling users to log in to EthSign via crypto wallets like MetaMask, upload documents, and perform electronic signatures.

A spokesperson from Sequoia Capital India stated that this is the first time all three divisions of Sequoia have participated in the same round of financing, and not just in the crypto space. EthSign founder Yan Xin also emphasized the internationalization of the investment institutions, with investors distributed across the United States, India, Singapore, South Korea, China, and Europe. Additionally, many of the investors are project partners that have close cooperation with ETHSign.

1. What is ETHSign?

With the rise of trends such as paperless offices, remote work, cross-border trade, and internet finance, electronic signatures have begun to see widespread application. However, electronic agreements pose risks such as non-standard operations, susceptibility to tampering, potential loss, and difficulty in verifying the identity of the electronic signers.

Moreover, traditional electronic signatures also have drawbacks due to centralization, such as: users must go through authoritative third-party service providers for verification and retrieval of agreements, and sensitive agreements are stored on third-party platforms. If the service provider goes bankrupt, the data stored on their servers faces the risk of loss and leakage.

ETHSign is a decentralized electronic protocol signing platform established in 2019. Users can bypass authoritative intermediary institutions to achieve peer-to-peer transactions and collaboration. After both parties sign, the data will be stored on blockchains like Ethereum, with the validity of the contract proven by numerous nodes on the chain, rather than by authoritative intermediary institutions.

Currently, ETHSign serves users from both the web2 and web3 worlds.

Although users ultimately need to interact with decentralized identities on ETHSign, considering that traditional users do not have digital wallets, ETHSign has partnered with the digital identity solution Magic to help web2 users enter the web3 world. Users can automatically create a public-private key pair using their email through Magic, and then register and log in via a link in their email. Additionally, ETHSign has integrated Web3 Auth (Solana Torus wallet), allowing users to log in using social accounts like Discord and Twitter. The Torus wallet also eliminates the mnemonic phrase step, lowering the barrier for newcomers to enter web3.

Traditional users can generate private keys through the above two methods, sign specific documents, and record digital signatures and related operations. ETHSign also utilizes Biconomy's sub-product Gasless TX, which can prepay gas fees for users without native tokens in their wallets, thereby reducing transaction friction for new users in the crypto world.

For web3 users, ETHSign currently supports wallets like Metamask and has deployed on networks such as Ethereum, BSC, Avalanche, Polygon, and Fantom.

EthSign's current technology stack, source: EthSign Medium

EthSign can implement all the functions that traditional electronic protocol signing platforms should have, but all data is decentralized and stored on-chain.

Specifically, the signing data of EthSign will be recorded on-chain, while contracts, agreements, and other sensitive data will be stored on decentralized storage platforms off-chain. EthSign uses both IPFS and Arweave. The node plugin of the decentralized storage protocol Arweave will allow a file to be stored on both networks simultaneously, facilitating retrieval on IPFS while providing persistence through Arweave. All agreements and off-chain data will be stored by default on these two networks. EthSign also plans to integrate Filecoin and Skynet in the future to provide users with more options.

EthSign does not run its own servers but functions more like a tool and browser, with scalability. Therefore, as the user base grows, the operational costs for the team will not increase.

2. Bridging the Web2 and Web3 Worlds

The web2 and web3 worlds will coexist for a long time, and ETHSign is dedicated to bridging the gap between the two in the electronic signature scenario.

Currently, ETHSign mainly consists of two primary products: EthSign Signatures (signatures) and EthSign Smart Agreement (smart agreements).

EthSign Signatures is the first product of EthSign, providing electronic signature services for agreements. Besides data being on-chain, its functions are largely similar to traditional applications, and users can choose to visualize private key signatures. Users can upload handwritten signatures or generate signature images online, ensuring that the user experience is not diminished. EthSign currently does not charge for its services but plans to tax hosted transactions after the execution platform launches.

The latest version of EthSign will be released in early May, source: EthSign Medium

EthSign 3.0 was officially launched in June 2021. Since its launch, it has collected 13,211 signatures, with teams like Metamask and Amber Group using EthSign's signature functionality. The official website is currently undergoing an upgrade, temporarily halting new protocol features, but users can still query old contracts.

According to the team, previous upgrades were built on legacy code, but this upgrade is "from scratch." Smart contracts have been rewritten, and the front end has been rebuilt, optimizing all aspects including functionality and visuals. The gas consumption of the new version's smart contracts will be reduced to one-tenth of the previous amount.

User feedback and support channels indicate that most PDF contracts signed on EthSign are memorandums of understanding, investment agreements, asset pledge contracts, etc. Based on the analysis of this data, ETHSign plans to launch its second product—Smart Agreements (smart agreements) execution platform in the third quarter of this year, which will allow users to execute signed agreements through smart contracts based on predetermined conditions.

These two products generally work in a complementary manner. The former helps generate legally binding signatures, while the latter quantifies the terms of agreements and places those terms into smart contracts, automatically managing the assets provided in paper agreements. In simple terms, it helps to put assets from the web2 world on-chain. Thus, the front end of the project is an electronic protocol signing platform, but the smart contract can be abstracted as an interaction platform between identity and content.

We can look at a few practical application scenarios. For example, decentralized autonomous organizations (DAOs) currently need to register as LLCs (limited liability companies) to operate compliantly. However, to achieve true decentralization, all agreements must be moved on-chain.

Some asset-heavy DAOs, such as CityDAO, aim to establish a city where each piece of land is an NFT that can be co-owned by the DAO or individuals. This agreement to raise funds from the crypto-native community to purchase land in Wyoming can be signed through EthSign Smart Agreements and managed on-chain, with EthSign serving as the interface between the DAO and the off-chain world.

According to EthSign founder Yan Xin, they are currently exploring collaborations with credit card, insurance, and payment companies in CeFi, such as allowing users to collateralize on-chain assets and deposit or withdraw cryptocurrencies through EthSign. In addition to the current two products, the team also plans to design more sub-products this year, including payment certificates for investment and financing projects, simplified process tools, and more.

EthSign is also collaborating with legal tech organizations to explore ways to connect the two worlds.

3. How to Ensure the Legal Validity of Electronic Signatures?

So, how can we ensure that signatures based on Web3 identities are legally valid?

The validity and legality of electronic signatures vary across different jurisdictions and specific scenarios. Currently, the electronic signature laws of different countries mainly fall into two categories: technology-neutral laws and layered model laws.

Technology-neutral means relatively lenient, not specifying that electronic signatures must use a particular technology to be legally binding and enforceable. Jurisdictions adopting technology-neutral electronic signature laws include the United States, Canada, China, Australia, New Zealand, and others.

For example, in China's "Regulations of the Supreme People's Court on Several Issues Concerning the Trial of Cases by Internet Courts," it mentions:

If the electronic data submitted by the parties can prove its authenticity through electronic signatures, trusted timestamps, hash value verification, blockchain, or other evidence collection, fixation, and tamper-proof technologies, or through electronic evidence preservation platforms, the internet court should confirm it.

The requirements for reliable electronic signatures (digital signatures) in the "Electronic Signature Law" are as follows:

• The data used to create the electronic signature belongs exclusively to the electronic signer;
• The electronic signature creation data is controlled solely by the electronic signer at the time of signing;
• Any changes to the electronic signature after signing can be detected;
• Any changes to the content and form of the data message after signing can be detected.

Therefore, based on extensive legal research, EthSign adopts the EIP-712 standard for generating and writing digital signatures into documents, making EthSign compliant with the digital signature laws of mainstream countries. However, certain specific signatures, such as wills, adoption, and divorce agreements, still cannot obtain electronic signature authorization.

4. The Future of Electronic Protocol Signatures and Decentralized Identities

Electronic signatures and smart contracts also signify the interaction between decentralized identities and content, which can extend further. In the future, EthSign will support or become:

• Proof of off-chain assets being put on-chain
• Endorsement or certification platform
• Credit system construction for on-chain identities
• Interface for DAOs to interact with the off-chain world

After being widely adopted, EthSign will also delve deeper into data value and explore more use cases. For instance, through social network analysis, it can provide credit scoring for businesses. The on-chain data of EthSign is a record of business communications between addresses. By calculating the accurate number of business connections and monitoring the extent of fund usage with traditional social network analysis algorithms, it can provide on-chain credit scores for its addresses using multidimensional data. Business credit scores can serve as one dimension of multidimensional on-chain credit scores, which can then be used as credit scores for under-collateralized loans in DeFi.

EthSign founder Yan Xin mentioned: "Identity is merely two aspects. One is the identity in the social relationship structure, such as 'I am XX from a certain company,' and ENS serves as proof of identity in this dimension; the other is the identity behind behavioral data, which is 'what I have done.' In the future, EthSign aims to score identities based on the second direction, using on-chain behavior records for credit scoring. I believe there will ultimately be a project in Web3 that integrates multiple dimensions of credit scoring."

Regarding project progress, Yan Xin revealed that the latest version of EthSign, optimized and revamped, will be launched in the coming weeks, and the Smart Agreements product is also expected to be launched in the third quarter of this year. The entire team is currently focused on product development, and there are no plans for token issuance in the short term.