Identity data economy: A new dynamic among us, platforms and services
“What lies at the end of POAP?”
“Identity data economy.”
Attending a Web3 conference and receiving proof of attendance (POAP) to record our presence — this scene is familiar to many of us. Regardless of whether it is event check-ins or electronic tickets, POAP can reflect what happens offline online and become our digital belongings. In today’s world where POAP and various forms of ‘proof’ credentials are common, we might ask, what is the value of these credentials? Is the end of POAP just a pile of useless images?
It seems all of this is pointing towards a new identity data economy.
What is identity data economy?
In Dali, there is a recently opened co-working space inside an organic farm. If you own the NFT from last year’s “WAMO Summer” Web3 conference, you can enjoy a discount on the monthly membership fee. At first glance, these credentials resemble a membership discount system. However, they also function to connect users who can prove their “individual (consumer) value” through data with projects that are seeking high-quality target audiences. Credentials serve as a catalyst, allowing identity data to become an exchange value between users and projects.
Reflecting on the data economy, data’s value primarily lies in fueling advertising and recommendation algorithms. It is often employed to improve rates of customer acquisition and retention for businesses. However, the siloed database structures of data have deprived data accessibility from both businesses and users and have given rise to data giants and data exploitation. Alternatively, with POAP or other interoperable credentials, users can own their identity data as personal possessions and easily manage them by using them towards their own benefits and rights. These credentials are typically stored on blockchain, decentralized storage, or local devices, allowing efficient data flow and improved utilization.
Data sovereignty allowed a new dynamic to emerge among identity owners, data-generating platforms, and service providers. Users now have the ability to generate and retain data from various platforms, enabling them to independently provide these data to service providers in exchange for economic and social value. These individuals may have strong investment capabilities, social resources, and active contribution history, making them ideal potential community members for many projects. Hence, to mark the valued actions from those individuals, a POAP or other credentials are issued to contain the data of the action. In the aforementioned example, people who have attended “WAMO Summer” and collected a POAP earn a good discount in the co-working space because the business owners want to attract people who work in Web3. This framework enables users to self-provide data and establish new relationships with their service provider, without relying on the data accessibility from the data-generating platforms.
In this new dynamic, service providers might have very similar needs to those in the traditional data industry: selling products to potential buyers, achieving user growth, and improving product quality. However, instead of paying data analytics providers to find target audiences and enhance competitiveness, they can ask for the information they need from the identity owners, who can directly benefit from the services. By authorizing service providers to access their own data, identity owners can prove whether they meet the service providers’ various personas, help them gain insights into learning about target audiences, and thus obtain rewards provided by the service providers.
Creator economy <> Identity data economy
When we think about how identity owners are producing value that businesses can capture to acquire target customers and promote and enhance products, the identity data economy bears some similarities to the creator economy.
In the traditional creator economy, content creators produce captivating content to gain followers, creating exposure value that presents opportunities for projects looking to advertise their products. Similarly, in the current identity data economy, Web3 users generate what can be called “humanity value” through the accumulation of data, including their participation in offline activities, on-chain behaviors, transactions, and asset holdings. Projects actively seek out these users and offer rewards or incentives, aiming to achieve product exposure and community growth.
Unlike the traditional creator economy, users do not need to actively pursue attention and exposure; instead, they derive economic benefits by enhancing their personal reputation in Web3. It creates a shift from ‘Appearing to be a great influencer’ to ‘proving to be a great influencer’. This shift transforms the previously adversarial relationship between project owners, who rely on using content advertising to disperse user attention, and users themselves. Instead, a unified front is formed, where projects can examine self-provided data from users to identify target groups, and users are duly rewarded based on their accumulated reputation, creating a sense of cooperation and mutual benefit for all stakeholders involved.
Moreover, akin to the concept of “followers” in the creator economy, all adjacent web3 residents benefit from the data generated by identity owners. This is due to the active participation of identity owners in fostering an authentic and flourishing online ecosystem. This parallel can be drawn to the relationships we cultivate in our physical neighborhoods: we seek genuine and harmonious interactions with our “neighbors”. When individuals enthusiastically engage in local activities, express their opinions, and contribute to community development, it creates a mutually beneficial environment for all parties involved.
What can we do to build the identity data economy?
If you consider the scenario in the creator economy where content creation fails to translate into exposure value, the relationship between content creators and project owners would be unfulfilled and imbalanced. Similarly, the current identity data economy in Web3 encounters analogous challenges: the data generated often struggles to be converted into tangible “humanity value” or personal reputation. Several reasons contribute to this issue, including:
- Data fragmentation. Web3 users often find their extensive identity data scattered across various platforms, making it challenging to consolidate and present a comprehensive on-chain identity. Consequently, this fragmentation leads to a lack of adequate data support for establishing on-chain reputation. Furthermore, there is a notable absence of systematic indexing, management, and analysis of these identity data, underscoring the need for a more modular approach to address these issues effectively.
- Data security and privacy. There are numerous risks involved, including the potential linkage of crypto wallets and application data, which can compromise asset security and user privacy. Project owners in Web3 frequently grapple with issues like bot spam and Sybil attacks, highlighting the lack of adequate methods and tools to effectively target specific user groups while maintaining the integrity and security of the data. Addressing these concerns is crucial for fostering a trustworthy and secure environment within the Web3 ecosystem.
There are multiple attempts we have made to tackle those challenges.
First, we built an identity aggregation solution that allows users to link identities across different networks. The Identity Management Pallet in the Litentry Parachain and Trusted Execution Environment allows users to connect multiple Web2 and Web3 identities. It enhances user data liquidity and facilitates systematic identity data management and analysis. It is important to note that we do not provide functionalities that incorporate off-chain data onto the blockchain, such as Oracle services. Furthermore, the Verifiable Credential Management Pallet enables users to modularize data through verifiable credentials and calculate corresponding identity scores facilitating the flow of reputation between user identity and project owners.
Second, we provide a robust privacy solution that enables Web3 users to overcome concerns about privacy breaches and freely construct and use their on-chain identities. For any sensitive user data storing, such as the identity linking relationships, data will be stored in closed environments or enclaves (TEE’s) in which only the user has control over their data and sharing authorizations. Any input and output, such as a user’s sensitive account relationships or their credentials, are encrypted with cryptographic keys.
The aforementioned identity solution focuses on facilitating the identity economy between projects and Web3 users, but there are many more awaiting to be solved. The goal is to allow identity data to be more widely and privately consolidated into on-chain reputation and then discovered and utilized by projects.
Looking ahead
In the context of the identity data economy, the value individuals can contribute extends beyond their “humanity value” or other basic identity attributes. It encompasses various aspects that would evolve as the economic model evolves.
These values can manifest in different ways, including but not limited to:
- Being a perfect fit for a project’s services
- Possessing valuable skills, expertise, or experience that can be tapped into
- Being as valuable as the financial resources they can bring to the project
Different types of projects target distinct audiences, leading to variations in content creators who align with their values. Similarly, in the identity data economy, the tone and characteristics of different projects would determine the user demographics they aim to attract and can attract. To cater more accurately to project owners’ requirements, we look to introduce the functionality of project-specific identity scores, enabling project owners to precisely target user groups that align with their project’s tone and values.
In summary:
- The emerging identity data economy enables users to independently provide personal data to service providers for value exchange, thanks to data sovereignty, bypassing limitations of data-generating platforms.
- This shift benefits both service providers and adjacent web3 residents through direct interactions and a more authentic ecosystem.
- Challenges arise in converting data into tangible “humanity value” due to data fragmentation, security, and privacy concerns. These challenges can be tackled with identity linking and Trusted Execution Environment.
Sincere thanks to Teun for contributing to this piece. The above anime illustrations are generated using Midjourney.
