Identity in the crypto and Web3 world is a very delicate subject, as it technically doesn’t exist. Every account is an interchangeable wallet address, which is very easy to create. This has key ramifications both for regulators, who frown upon unknown entities and transactions, as well as regular apps who never know if their users are real.
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The regulatory answer to this issue is Know Your Client checks, which involve verifying each wallet with physical documents and identities while also minimizing transactions with unverified accounts as much as possible. This is the principle behind the FATF Travel Rule, which is gradually being implemented across the world.
Multiple startups are trying to implement the decentralization solution to the identity problem — the so-called Decentralized Identifiers (DIDs), which can prove the identity of a person in a fully-decentralized manner. The goal is to be able to identify a unique human without knowing who that person is, maintaining their privacy.
In addition, Web2 and Web3 alike are plagued by impersonation scams and bots. Both Twitter and Telegram, two social media channels heavily used in Web3, are notorious for the constant stream of fraudsters trying to steal money from unsuspecting users.
Scams targeting individual users are significant, especially in the NFT space. A report in 2022 placed the total losses at over $100 million, which could only have increased since then. Also, a single week in June 2023 reportedly saw over $150 million in losses, mostly from large Ponzi schemes and hacks.
The advent of generative AI boosted the scammers’ ability to target victims, including through the use of deep fakes and AI-led conversations that enable massive scale to fraud operations.
How cheqd Aims to Fix This Identity Issue
cheqd, a data economy startup, has recently released its new Creds platform as one of the first practical attempts to implement DIDs against fraud. Creds allow holders to prove personhood and uniquely verify ownership of social media handles and wallets. It also allows proving certain roles in Discord or Telegram chat groups, ensuring that people are communicating with the right person.
Creds are unique compared to other approaches based on NFTs or Soul Bound Tokens (SBT), which are a special type of non-transferrable NFT designed to prove a person’s identity. However, according to Fraser Edwards, CEO and co-founder of cheqd, “Creds offers a privacy-preserving alternative to the surveillance enabling tech of SBTs and NFTs where you have little control over your privacy.”
SBTs were first theorized by Ethereum (ETH-USD) co-founder Vitalik Buterin as a decentralized reputation system enabled through non-transferable tokens. The idea would be that wallet addresses would collect the SBTs representing things like achievements, past work history, reputation within decentralized autonomous organizations, and all the way to medical records and real-life documents.
The vision behind Creds is similar, but the project maintains that SBTs are too inflexible and lack privacy. Because of how blockchains are fully transparent to the outside world, it becomes difficult to effectively manage a user’s SBT reputation, and privacy for the individual users is especially difficult.
Creds are a hybrid on-chain and off-chain system. The actual data of the users is stored off-chain, outside of prying eyes, but thanks to cryptographic signatures and a network of decentralized on-chain identifiers, it can be easily verified for veracity. Creds are also revocable and transferable, which guarantees the “right to be forgotten” and overall adds flexibility to this reputation system.
Edwards concluded that Creds have “all the best things that the NFT and SBT have with the addition of everything else they are missing.”
The platform was launched at the Nebular Summit in Paris to an initial audience of active Web3 users, who will have verifiable proof of attending the summit tied to their initial reputation. The first target for Creds is gamification for Web3 communities, which offer a more reliable way for projects to attract real members instead of bots and fake accounts. With time, the platform expects to expand this system with more “certificates” that can include previous work, swag, and community membership.
Among several credible DID projects, Creds is tackling the lowest-hanging fruit first — crypto-native communities. This approach can help make crypto safer and more practical to use as the system grows to accommodate real-world use cases too. Also, potentially, its higher flexibility can make Creds easier to adopt than other “cypherpunk” solutions.
