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Web3 is a classic Next Big Thing: very exciting with tremendous potential, but still in its infancy with plenty of unknowns. As the Harvard Business Review recently wrote, “[Web3] offers a read/write/own version of the web, in which users have a financial stake and more control over the web communities they belong to.” Moving some control from the tech giants to everyone else sounds intriguing, so why all the drama about Web3 in discussion groups, online skirmishes, conferences, and the media?
You’ve seen the headlines: “so and so got scammed for $X millions of crypto…” — and in some recent cases, more than mere millions. The victims include sophisticated companies. The blockchain is the foundation of Web3, and while it solves some problems, it has also enabled new ones. Depending on who you ask, Web3 is a fundamental makeover of the Internet, a scam, a hyped rebranding of Web 2.0, or all the above. And industry-savvy people are ready to argue all sides with religious fervor.
Web3: Many camps of thought on trust and identity
Within the world of Web3 advocates, there are at least three groupings of opinion on the issue of identity. For those who aren’t familiar, here’s a quick run-through.
Some envision Web3 as a world where our identities remain secret — where our true legal identity is never supplied and thus cannot be easily exploited by tech giants and governments.
On the other end of the spectrum is the full-trust community, which is committed to a Web3 where everyone’s true legal identity goes everywhere with them, so they will presumably be more trustworthy and accountable in Web3.
Finally, between those two “purist” positions is a gray zone that’s favored by some who endorse pseudonymity; that is, users can build up an online persona and reputation, and that creates some trust, but real identities are usually concealed. A user would be known only as LAballplayer6, not by his real name, Lebron James. In the case of illegal behavior, law enforcement can presumably link the pseudonym to the real person behind it. Marketers trying to sell consumer items could not, though.
One reason I am optimistic that Web3 actually is a Next Big Thing is that it’s dynamic and vibrant enough to encompass these different viewpoints and deliver different environments.
Web3 can help solve a number of different problems. Removing the middleman is an oft-mentioned feature. Doing business beyond the eyes and ears of governments and Big Tech is another popular one. In addition, Web3 should remove friction from complex transactions that may unfold quickly or very slowly.
Web3, secrecy version
Web3 isn’t just about crypto. Some see it as the missing link between crypto and things that matter — a tool that removes friction and middlemen.
As a hypothetical example, let’s say you write lyrics to a song. You copyright your new song and post it on the blockchain, inviting investors to buy into ownership of “half” the song. Ten thousand people like it and each invests $5. You don’t care about their identities; you are just paying them small amounts. The song goes on to earn $20 million. Each investor earns $1,000 in royalties. You keep $10 million. Web3 may be the answer for situations like these. No expensive clearinghouse or central broker needed — everything happens in a decentralized, trustless way, which happens to be what blockchain enables.
There could be tax and accounting implications as well; if you, the songwriter, anonymously puts all the accounting operations for this investment vehicle irrevocably under the control of a blockchain-based contract, then who is responsible for filing 10,001 tax forms, showing royalty payments to each investor?
Web3, with unshakable identity
As mentioned earlier, there is an opposing camp that wants robust digital identity to protect everything that happens in Web3. In fact, Web3’s acceptance by many people will likely depend on robust identity verification; that is, on zero anonymity. That’s anathema to the secrecy advocates, of course, but wIthout some accountability, some buyers or sellers may back away fearfully from transactions of all kinds. Digital identities and online IDs do not reassure them because those can be stolen wherever they are, even the official digital IDs that a few countries like Estonia and Singapore have issued.
For inescapable identity to be a foundational part of Web3, there would have to be a continuous linkage between each party’s real-life physical identity and their on-chain digital identity. It would be impossible, in a transaction, to hide one’s true identity. To build trust, the linkage cannot be a one-time transaction — that would make impersonating the physical identity the easiest way to compromise the integrity of an on-chain digital identity. An unbreakable linkage makes it harder for bad actors to continually scam others because their history is public.
Web3, with “some” identity: Pseudonyms
Web3 is seen as potentially bridging the gap between an individual’s physical identity and their digital identity via blockchain technology. This suggests that each individual will have a “decentralized identity,” which encompasses both their online and real-world legal versions. A person’s online commerce activity would then be “on chain,” meaning it would be public and easily searchable via their individual on-chain wallet. The question becomes how much of their real-world identity would be visible or attainable through investigation or subpoenas.
In theory, at least, if anyone does bad things in this version of Web3, their pseudonym or online identity would have a negative history and everyone would see that trail of broken promises. Their poor behavior would follow their online identity, but with no visible linkage to who the bad actor is in the real world. To say this topic generates controversy would be an understatement. Some reject the notion of each internet user having a unique online identity that they cannot shake and which is ‘stamped’ onto every online transaction they carry out. Others find this ineffective in preventing fraud.
There may well be different flavors of pseudonym-based identity as solutions come to market with inventive tradeoffs of privacy versus trust. Tinder and Airbnb illustrate the difficulty of finding the right balance. On these platforms, if there’s no clear photo of your date or lodging host, you might assume that you are dealing with a con artist. There are various levels of identity verification, some voluntary, and others not. Millions of people love these services, and thousands do get scammed or deceived.
In Web3, we might accept people concealing their real identity for small transactions or because some trusted third entity ‘insures’ their honest behavior for us. If they’re selling you a car, though, you’d probably demand full access to know who they are, to verify the seller actually is authorized to sell that property.
Web3: Transformative, with a few details to sort first
There’s a tremendous opportunity for Web3 to redefine what the future of digital identity (and of cryptocurrency) will look like, but no matter which privacy/trust balance is struck, the issue of identity must be dealt with. The possibilities are exciting; Web3 may well help cryptocurrency find its place in our economic lives, as Web1 and Web 2 did for PayPal. The combination of cryptocurrency, Web3, and blockchain could also significantly transform how we pay for almost everything and enable a plethora of new ways to carry out payments, investments, and contracts, but only if the parties to a transaction agree on verifiable identity versus secrecy.
A day will probably come when Web3 is important to everyone with an internet connection, even if it doesn’t quite match what Web3 visionaries expect today. It will probably be too big for any one approach to personal identity to prevail completely. There will be zones with more accountability and others with more anonymity. Web3 will be diverse and pluralistic.
Rick Song is CEO of Persona