Web3 digital identity is here to stay, but it has a long way to go

In today’s digital age, most consumers have some form of digital identity. Whether it’s a social media profile, gamer tag or online banking credentials, digital identities have become an integral part of people’s daily lives.

However, the ownership of these digital identities is often unclear, leading to a growing concern among users. This has given rise to Web3-based digital identity solutions among crypto enthusiasts and blockchain aficionados alike as they seek greater control over their personal data, finances and privacy.

Digital ID in Web3

Digital identity in Web3 refers to a unique online identity that the individual user fully controls. Unlike traditional web identities — which are typically owned and managed by third-party platforms — Web3 digital identities are self-sovereign, allowing users greater control over their personal information and privacy.

These digital identities are built on decentralized identity (DID) systems, which use blockchain technology to provide secure and tamper-evident storage of identity-related data. This, in turn, enables users to create, manage and authenticate their identities across multiple Web3 applications and services without relying on a central authority.

However, the current state of Web3 digital identity solutions is often complex, fragmented and challenging for users to manage. In response, companies such as Unstoppable Domains and Ethereum Naming Service (ENS) have been established to build user-friendly solutions to simplify digital identity management. The emergence of Web3 digital identity solutions has also led to attempts to aggregate different solutions. Space ID is a leading example, offering a unified interface for managing multiple digital identities across various blockchains.

Although these platforms may address some of the usability challenges of digital ID in Web3, they also introduce new trade-offs and limitations.

Vanity for a price

One of the primary appeals of providers such as ENS is the user’s ability to customize their digital identity to suit their preferences and personality. This customization can include selecting a unique username or ID name, choosing a particular domain name, and even designing a digital identity through a string of emojis through providers like Y.at.

While these customizations can be a fun and exciting way to express oneself, they can also lead to a number of hurdles, including hefty price tags.

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For example, ENS imposes yearly renewal fees for domain names. These fees vary depending on the length of the name, with longer (five characters) names costing $5 per year, while shorter names (three characters) can cost as much as $640 annually. These fees must be paid in Ether (ETH), and the exchange rate is determined by the Chainlink ETH/USD oracle.

This pricing model can pose a significant financial barrier for individuals and communities with limited financial resources, limiting their ability to participate in the Web3 ecosystem and potentially exacerbating issues of exclusion and inequality.

Cyber squatters

Further fueling these steep prices are individuals who register unique usernames or domains with the primary intention of reselling them later for a profit, a practice better known as cybersquatting.

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The act of cybersquatting can result in scarcity and, eventually, a shortage of desirable digital identities, further driving an increase in the value of these domains, thus further making it challenging for individuals to obtain them at an affordable rate. IDs were never meant to be used as speculative investments, but rather as tools for downstream services.

Besides that, cybersquatting has its ethical implications, as it can prevent legitimate users from accessing the digital identities they genuinely want, resulting in the violation of the very core principles of decentralization by granting a select few people the power to control and profit from the most in-demand identities and domains.

What is the future of digital identity?

As the Web3 space envisions the future of digital identity, it is important to consider what the technology should actually be used for.

Digital identity solutions have the power to revolutionize the way consumers interact with digital services, enabling greater control over personal data and privacy while also simplifying authentication processes simultaneously.

As such, digital identity solutions should pivot their value proposition and focus on prioritizing usability, accessibility and security. Future solutions should be designed with the end-user in mind, creating a seamless onboarding process for individuals to create and manage their digital identities across a wide and full range of platforms without having to compromise their personal data or expose themselves to cyber threats.

Moreover, digital identity solutions should be accessible to all individuals, regardless of their financial means, geographic location or technical expertise. Evidently, this will require developing cost-effective, user-friendly solutions that can be easily integrated into existing systems and applications.

Final thoughts

At the end of the day, the essential goal of digital identity should be to empower individuals to have greater control over their personal information and privacy while enabling seamless, secure and trusted interactions with a comprehensive range of online services. This requires creating interoperable identities that can be used across a wide range of both daily and infrequent use cases.

All things considered, digital identity’s true potential as a game-changing technology can only be realized when individuals can use a single identity for all their online activities, rather than needing a different one for each set of services.

Furthermore, the Web3 space is in need of a digital identity solution that is designed to meet the needs of all individuals and communities — regardless of their technical expertise or financial situation — to ensure equal participation and inclusion.