Author: KERMAN KOHLI

Compiled by: Deep Tide TechFlow

We are currently in a downturn in the cryptocurrency market, which can be described as a severe blow from a bear market. Everyone is asking where the actual application scenarios and value of the technology products we are developing lie. Many people have put forward seemingly good points, but none have clear reasons to explain why these products would be more advantageous than ordinary Web2 applications. I have been pondering this question for some time, and based on personal experience and judgment, I hold a cautiously optimistic view on certain points. This article is not about discussing ideology but focuses on practical issues like technology and standards. Before we delve deeper, let’s first take a look at how the existing internet operates.

Web2, Data Producers, and Identity Verification

When you register for a service on the internet, the service provider does not actually know your true identity because all your information can be forged. Your IP address, browser cookies, device fingerprints, etc., are merely approximate identifiers that can be faked. Everything can be forged.

This has led to the emergence of identity verification standards that primarily rely on the following:

• Email address;
• Password;
• 2FA (Two-Factor Authentication) schemes.

Whenever you use certain services on the internet, the service provider needs a persistent and secure identity to bind your data. More importantly, it must provide a way for "you" to verify "yourself."

Each database creates a different identifier for you. Facebook, Twitter, and Instagram create unique identifiers for you in their databases.

When you log into other services using OAuth, they can reference that identifier, but they will still create a new entry in their own database to identify you. OAuth providers may share certain data points with external developers, but this is usually very limited. Then, specific developers bind any information generated in their applications to the newly created user identifier in their database.

You may have noticed that in every service you use, "you" are represented repeatedly. This is not because Web2 has any malice, but because, given the limitations of current hardware, this is the only logical approach. However, as the decades pass on the internet, this has led to larger problems:

1. All your identity and reputation data is confined within the specific ecosystem you registered in. Your Twitter followers remain Twitter's data, and you cannot export them.

2. Any information created on the internet is linked to the identity within that service. Google reviews can only display the information Google has about you.

3. Every new service you register for requires you to rebuild trust and reputation within that ecosystem, regardless of what you have done in the past.

This is the environment we find ourselves in today:

• Our profiles are the only things that identify us;
• However, our information remains fragmented .

As the authenticity and credibility of all information on the internet must be scrutinized more and more, we are beginning to see this becoming a larger issue. Whenever I read articles with strong opinions, I usually:

• Find out who the author is;

• Track their Twitter and any other sources I can find about them;

• Look for citations of the article on other websites;

• Make an overall judgment on the author's biases and opposing viewpoints.

However, I know that I belong to a minority here. Most people will undoubtedly accept the information presented without understanding the identity of those data producers (where data is defined as any information presented in the form of articles, tweets, videos, etc.).

The key issue we collectively face is that we do not have a clear method to definitively identify our online identities. Every time you visit a website, receive a message from someone, or get an email, you have the potential to be talking to the wrong person because we identify someone through unique usernames. This has already begun to create significant problems, and we cannot even identify ourselves in online communications.

I might be "XXX.eth" on the chain, "XXX" on Telegram, and "xxx" on another platform. However, if someone messages you on Telegram as "xxx," you might think it’s me. Without public key authentication, trust on the internet is a mess.

Over time, the lack of a more robust, persistent digital identity recognition is a common problem humanity faces.

Cryptography, Crypto Timestamps

Part 1: Cryptography

This may sound strange, but hear me out. They are two different yet similar-sounding concepts.

Identity cryptography essentially involves multiplying two large prime numbers to generate a new, larger number. While this sounds simple, the complexity lies in the fact that these primes are essentially unguessable and practically impossible to crack. When you authenticate using a private key, your hardware uses unique information to establish its identity. This method represents a key shift in managing identity: the identity owner knows a large number that is also recognized by the recipient's common standard.

In contrast, traditional web infrastructure requires us to re-establish identity for each new service we use, leading to different IDs in each joined database.

Part 2: Crypto

So how does blockchain play a role? The second tricky part of this puzzle is how you verify when that information was broadcasted. If you simply sign a message with today's date, how do you know you have the correct date? Perhaps you delegate the responsibility of time to another party, but what if they are compromised? You end up with recursive logic.

Blockchain is, in an innovative sense, a database that records expiration date information. They do not rely on the human concept of time; they depend on block numbers to determine when something occurred. I don’t think we truly realize how groundbreaking this is. You do not send a transaction with a "this is the transaction time" field. You simply submit the transaction to the network, and when miners mine it, it gets included in a block and then assigned a timestamp.

Think about it: what system exists where you give it information, and it tells you when that information actually occurred? We always expect that when we say something or communicate online, that is when it "happened." Not in the cryptocurrency realm. When we want to convey information on the chain, we just need to express what we want to convey, and the blockchain will tell us when it happened.

To summarize:

• Cryptography creates a shared authentication standard that we all can agree on;
• Crypto driven by blockchain creates a shared time standard that we all can agree on.

Why is Identity Important?

In our collective frenzy for wealth, we have forgotten that blockchain represents two key fundamental innovations. This also means that we can start changing the world by introducing one innovation and gradually adding the second innovation when it makes sense. You do not need to apply both simultaneously to make an impact.

By 2023, with the emergence of AI, the world needs stronger identity standards. Information is the foundation of our society, but when the trust and verification of information decline, we ultimately find ourselves in some dangerous places.

Sending stablecoins and playing casino games is fun, but cryptocurrency can address greater interests and solve larger problems facing society today. Because cryptocurrency is built on the foundation of cryptography, it has a larger ecosystem in terms of cryptographic standards than anywhere else. You can already see cryptography becoming the gold standard as Apple adopts PassKeys and one-time passwords to enable 2FA authentication.

• In Web2, cryptography is a second-class citizen.**

• In Web3, cryptography is a first-class citizen.

Alright, now that we are all on the same page, let’s talk about cryptocurrency and identity. I have been deeply involved in this issue over the years, and I believe I have found some key links that were not previously obvious. The biggest use case for cryptocurrency is not "decentralized identity" or some noble ideal; it involves:

• "Owning your own data and profiting from it"

• "Uploading your passport on the blockchain for better KYC"

• "Linking your Twitter, Facebook, and Ethereum addresses to create a new identity."

These concepts are far from reality; they are just hollow narratives that do not create products that help real users. This narrative is primarily used to secure massive funding from investors without adding value to the end consumer. To clarify these misconceptions, it is important that we use better language to describe what we are talking about. I believe that when people even say things like "on-chain identity," they draw incorrect conclusions because it implies you must operate on-chain. This is not true either.

The Path Forward

Permissionless Identity: "Portable, Persistent, Cryptographically Supported Identity"

They are what we know today as public keys. It does not matter whether data is on-chain or off-chain. The key point is that you identify/authenticate yourself on digital services through your public key. All information is bound to your public key, enabling interoperability.

However, this is why they have a clear advantage over any other Web2 system we have today:

• Build in one environment, use in another. All your activities and data in one ecosystem can be accessed in a completely unrelated ecosystem.

• Permanence. Once a private key is derived, it does not disappear. You cannot delete a private key or data on the chain.

• Usable on-chain or off-chain. Your identity is a combination of all the places where you authenticate as a public key, whether on-chain or off-chain. The key is innovation, not the blockchain.

• The ability to create new identities (or fragments) with the click of a button alongside existing identities. Unlike Web2, where all identities ultimately bind to your passport (phone number, internet service provider), permissionless identity does not require permission to create or fragment.

• Anyone with an internet connection and access to the right hardware can use it. There is no "issuing" authority to generate identities. As long as you have the right infrastructure to protect your identity, you can create one. Due to its borderless nature, the things you can do with this identity are also limitless.

Conclusion

Permissionless identity fundamentally supports an entire new category of applications that are ten times better than the applications you see on the existing web. A world where one app can improve the experience of all other apps. You will see the beginning of a flywheel effect, and I envision its development as follows:

• With the rise of applications like crypto consumers, they will naturally rely on permissionless identity as a natural authentication standard.

• These applications will be able to start perceiving the context of your past behaviors and actions in other applications.

• The ability to "import" context from the past and elsewhere can create better user experiences.

• Users will demand more applications to support public key-based authentication for logging in and using applications.

• As the number of applications supporting public key authentication increases, the utility users gain from their permissionless identities will also grow.

I bet the main use case for crypto has arrived: applications based on permissionless identity. The sooner we realize this, the faster we move forward in creating applications that people actually need.