web3’s Biggest Challenge is Identity

If it is all about better governance, web3 is going to have to come up with a way of knowing who’s there

The Identification Challenge

The problem of identity is often (always?) a problem of causation. Causation is a term used by scientists who are interested in whether a change in X caused a change in Y. As it is often hard to create an environment where you can clearly see the impact of X on Y free of other factors, scientists have devised lots of ways of statistically teasing this out. These include randomised control trials (where you apply, say, a treatment to one group and leave another as a control and then see what happens) or natural experiments (where you look for something that, at least theoretically, impacts on different factors in distinct ways to use that to give yourself more confidence that an observed relationship is a causal one). The process of achieving causal inference often requires grappling with the identification challenge: finding some additional information that helps you identify the effect you are interested in from other effects.

Identity for Participation

This brings us to web3. The vision is that many people might participate in a decision. That’s not new. It happens all over the place from board rooms to choosing government officials to YouTube likes (the latter used to inform decisions over whether content should be promoted as interesting to others). What is new is that it might be easier to set up and run a governance system — specifically, to have the process from the inputs (from people) to the decision and its implementation automated.

  1. Is the person participating, the person you think is participating?
  2. Does the person participating, qualify to participate?

Off-Chain Options

A recent paper by Puja Ohlhaver, Vitalik Buterin and a Microsoft employee describes the myriad of opportunities that could be provided — encapsulated in a new phrase “DeSoc” (aka Decentralised Society) — if the identification problem could be solved. They envisage “soulbound tokens” (or SBTs) that would be held in wallets. These tokens would be issued by others. For instance, one could be issued to the holder of a birth certificate. Another could be issued to the holder of a university degree. Then these tokens could be used as the substrate for web3 participation.

On-Chain Identification

Is there a way to solve the identification problem without referencing trusted identifiers in the real world? If you want to know that who you are dealing with is some specific person in the real world, then no. But if you care instead that you are dealing with one person with a persistent identity or who qualifies in some other respect then, maybe.

The web3 conundrum

In the end, any web3 service/organisation requires a solution to the identification problem. This could be done using external verification sources but then you have to wonder what the blockchain is really adding. This could be ignored from certain services where there are no vested interests in particular outcomes but information that can inform them but then you have to wonder if the blockchain is really consequential. What is more important is whether identification can be conducted on-chain. This would make automation of collective decisions valuable which is ultimately what web3 is about. That, however, is a difficult challenge and will take time to resolve.

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Joshua Gans

Skoll Chair in Innovation & Entrepreneurship at the Rotman School of Management, University of Toronto and Chief Economist, Creative Destruction Lab.