This is the fifth article in my ongoing "How to Think About Blockchains" series. The introduction, with links to the others, is here.
On the internet, nobody knows you are a dog, says the famous New Yorker cartoon. Nobody knows now if you are a bot or a scammer either, and the question of identity is a problem that it is critical for us to solve. If not, then we will find ourselves engaging unwittingly with programmed AI-driven entities that are likely to be trying to manipulate us in some way. We already are.
Identity is a huge question, so I am only going to scratch the surface here. It covers issues of nation states, tribes - in every sense of the word, and what makes us who we are. As far as financial institutions are concerned, I need a document issued by a nation state that proves my name, and another from a shortlist of trusted entities that proves my address. Our rates bill is in my wife's name and we cancelled the landline, so the only thing I have for the latter is a bank account with my name on it. It always feels a bit odd sending my bank statement to someone I don't know. Enter blockchains.
At a basic "know your customer" (KYC) level, blockchains provide an obvious solution to a very expensive problem for banks and other financial institutions. They are required to verify identity of customers and businesses, and often to repeat this process on a regular basis. Once it is done, though, every subsequent cashless transaction - credit cards, using the app, etc. - comprise various means of proving that I am the person with that ID document and proof of address. This is done by simple possession of a given card, knowing my banking password, or being able to unlock my phone with my thumbprint. In KYC circles these are "something you have, something you know, something you are"; card, password or PIN, fingerprint.
If we look to a future of money on blockchains, the obvious solution is a permissioned blockchain that is operated and secured by licensed FSPs. The "permissioned" part means that someone - a regulator - controls who can run a node on the chain; this will be limited to licensed entities. These FSPs will then issue wallets to individuals and businesses that they have KYC'd. Each individual will then log onto whatever wallet or interface they are using, and transact. The login will be familiar: password, card, fingerprint. The wallet becomes the identity.
The thing to note about web3 is that the identity also becomes a wallet. This is what differentiates web3 from web 2.0. Where you log in or register with any kind of online service - an e-commerce site, a news source, Facebook, Strava, your identity / wallet can now contain value, if you choose. This means that transacting online will be much faster and simpler. Because you are logged in, you can transact, probably within limits you can pre-approve, or perhaps confirmed with a ping to your phone for large transactions. This opens up a lot of potential business models and implications for those in FS, and anyone transacting online.
One really interesting one is that it potentially breaks the dominant business model of the internet. Advertising exists online as a way of monetising a website. If I watch a video on YouTube, then - if I am not a subscriber - I will see adverts before and during what I am watching. The revenue from these adverts is shared with the content creator. If I have logged into YouTube with my wallet based ID, then I could choose to pay, say 5 cents to watch a music video, or a few dollars to watch a TV episode or movie. The transaction would be much more seamless than the current credit card equivalent would be, and the wallet makes it possible at very low transaction values.
And the future is already here, as the man said. If you use the Brave browser, then you are one of more than 73 million monthly active users who are already opting into a better web3 experience. Brave - based on Chrome - doesn't track your history, blocks ads by default, and so provides a cleaner experience. It also rewards you for watching ads that you opt in to: you get 70% of the advertising revenue. On YouTube, creators usually get 30% of the revenue, and that is a generous one. On Instagram and Facebook, creators of content get 0%. On Brave, the advertising revenue is paid in BAT tokens. BAT stands for Basic Attention Token. It is designed to reward your attention, just as it says, and is paid to the wallet that is linked to your Brave identity. BAT tokens can be traded on crypto exchanges, and are currently trading at about $0.24 a token. An internet where micro transactions like this are possible is a different world from one that is dominated by a handful of massive companies trading off your personal information.
I am not (today) going to go down the rabbit hole of what constitutes identity, but i will give a taste of what it could mean. The other main way of making money on line is obviously to sell things. Subscriptions is a sub set of this. The online transaction is a good way to illustrate how other aspects of identity can work. Let's say I am a huge Swiftie, and I am in the top 5% of listeners on my Spotify wrap, I engage with Taylor Swift across social media, and just loooove her. When she comes to town I have to be at the concert. How do I - a bona fide mega-fan - get to the front of the queue for tickets? In the good old days, I would sleep out the night before at the box office (seriously kids, this was a thing). Currently, I line up all my devices, and all my relatives, on the ticketing site, hitting refresh until the sales open, then typing in credit card numbers as fast as I can, hoping it doesn't crash. Surely there is a better way that rewards me for my devotion?
Yup - the answer is tokens. Part of my identity in a web3 world is this Swiftie thing. My Spotify end of year wrap will be an NFT (non fungible token) showing my Swiftie creds. Owning limited edition merch will come with an NFT. Previous concert tickets would have been NFTs. This and more will be in my wallet, and digitally provable ownership of these things allows me into the priority ticketing process, where we are allocated tickets in order of our Swiftie points. It's like loyalty, but at a much more granular level. And because it's web3, it's transparent and portable.
Let's take a business example. Perhaps I always drink Jack Black beer. Perhaps this example is a little closer to my real life. Anyway: I will now have JB loyalty points in my wallet, or just proof of past purchases. I could choose to make this information visible to another beer company, and they might offer me a discount to entice me to try their product. Or Jack Black may partner with another brand, or an event they sponsor. My tokens could gain me early access to the event. This process is known as "token gating" - my tokens allow me to access something that is otherwise closed off. It could be a new release of music or product; it could a limited edition product, or an experience of some kind. This is the next frontier for status shopping, loyalty, collaboration and commerce. Shopify are already building in token gating to their sites, so this is another one that is coming very soon.
One web3 definition you might have seen is that it includes ownership. These micro transactions, proofs of ownership and elements of identity (Swiftie, beer drinker) are part of this. The range of possibilities here is enormous. Companies now have a new way of transacting that can incorporate a much richer idea of the identity of their customers, and the customers are in control of what aspects of identity they share. There are new models already being built around this. It may look like loyalty, or cooperative local communities, change movements, or something entirely new. As our lives are increasingly lived online, this will have a huge impact, but the possibilities of things we can do extend into the real world. I plan to write about some of those ideas about the future in my next article. Let me know if there's anything you'd like to see covered there.
image credit: https://www.pexels.com/@cottonbro/
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