👽 "Decentralized Reputation is About to Open a New Web3 Frontier:" Kevin Owocki

Hello Defiers! Today, we’re talking about the holy grail of DeFi and web3. The one piece that’s necessary to open up so many essential use cases, yet hasn’t been cracked just yet: Decentralized identity. Gitcoin founder Kevin Owocki writes about this key primitive, the value it could potentially unlock, and the teams building to get us there.

DeFi is criticized, and rightly so, for being a playground for speculators without much connection to the real economy. This is a direct consequence of the lack of a reputation mechanism. It’s such a hard piece to crack because the very core of decentralized finance is that it’s open to everyone and that usually means there’s no KYC, usernames and passwords. Your identity is your wallet.

This lowers the barriers of entry to financial services and creates a seamless experience for users, but it also makes things like lending and voting extremely hard, inefficient and gameable. The way to solve it has been to require users to put up collateral: Stake to play.

The key is to find a way to keep the best of both worlds: pseudonymous, open access, with a system that enables users to transact based on their reputation, and not just on the capital they already have. Kevin says this reputation-based ecosystem is already forming and gaining steam.

Kevin Owocki is a software engineer & the founder of Gitcoin - a place where software developers can GIT COINs for their work in building the web3 ecosystem. Gitcoin’s mission is to enable anyone to work for the open internet. So far Gitcoin has delivered $15mm worth of rewards to Builders of the Open Internet.

Both paid and free subscribers receive the full guest post, but paid subscribers got it early. Paid subscribers also get complete access to The Defiant content and archive, and access to The Defiant Discord chat. Join the club! Pay with Dai on this link (100 Dai/yr) or in fiat ($100/yr, $10/mo) at the link below.

Subscribe now

🙌 Together with:

• Zerion, a simple interface to access and use decentralized finance
• Balancer, one of the leading DeFi automated market makers (AMM) for multiple tokens. Dive into their pools at https://balancer.finance/!
• Kraken, consistently rated the best and most secure cryptocurrency exchange, which can get you from fiat to DeFi
• Casper, an enterprise-focused blockchain which aims to introduce unprecedented security, speed and scale for businesses

Decentralized Reputation Will Unlock the Internet Of Value

By Kevin Owocki

As a developer building on the bleeding edge of the web3 ecosystem, I can’t help but feel we have just begun to explore this design space. We are still discovering all of the completely new ways this technology will change the world. I see one trend in particular that will unlock a ton of value: Decentralized Reputation.

Why Now?

The internet has changed our lives. I grew up in the 90s/00s when the internet changed everything about how information flows in society: education, media, politics, news, even basic interactions.

20 years later we are building the internet of value. Everything that relies on value transfer will change: banking, insurance finance, governance, and jobs.

I believe the next major market cycle will involve decentralized reputation. Why? Because so much value transfer in the world depends on the reputation of the parties in the transaction!

1. When I get a job, I want to know who I am working with.
2. When I loan someone money, I want to know their history of repayments.
3. When I invest in a company, I want to know the founder’s reputation to understand their character.
4. When I get into an uber, I want to know that my driver’s reputation is free of major incidents.
5. When I log in to my social feed, I want to know the credibility of the content/authors I see.

The Opportunity Ahead

We have an opportunity and a great responsibility to reinvent the way society exchanges value. Just imagine the possibilities. With decentralized reputation:

1. .. we can better control our personal data, something often referred to as data dignity, like taking our social network data from site to site, minimizing the risk of yet-another-privacy-destroying-data-leak or even earning from our data if we choose to.
2. .. we can move from one-cpu-one-vote or one-token-one-vote to one-human-one-vote, enabling 10s of new digital democracy use cases.
3. .. we can reinvent the resume and truly work in public, by having our credentials built dynamically by dozens of educational & jobs applications.
4. .. we can take out undercollateralized loans secured by our reputations.
5. .. we can reinvent how founders court investors for capital.
6. .. we can build community monetary systems that optimize for (1) repeat interactions, (2) win-win games, (3) reduced miscommunication - all pillars of more trustful relationships with one another.
7. .. we can illuminate the dark forest of Ethereum - when we all know who we can trust to act in positive-sum ways. That is our ticket to the citadel.

The evolution of trust by Nicky Case teaches us that (1) repeat interactions, (2) win-win games, (3) reduced miscommunication are precursors to building more trust in a community.

Building on the decentralized reputation stack will allow web3 to go mainstream by creating use cases that are not purely speculative in nature, and don’t require a ton of capital to participate.

The mainstream internet citizen thinks about their earning opportunities, not their investments, when they think about their financial life.

At the same time, we must make sure to protect users’ privacy from the start. There is already too much surveillance of everyday users of the web, and by giving users, and only users, the tools to manage their own data, and to disclose discrete chunks of that data (as opposed to their whole browsing history or life story) we can build a more privacy-respecting web. Notably many of the technologies needed to enable this already exist.

Bootstrapping Decentralized Reputation

Creating widespread adoption of decentralized reputation systems is kind of a chicken and egg problem. You need infrastructure that can manage user data in a manner that adheres to our values (decentralization, user sovereignty, privacy-preserving). But you also need dApps that leverage this infrastructure to create value for end-users. This problem is compounded by the fact that many of these p2p apps are double-sided marketplaces, and are therefore network-effect driven.

For example:

1. You can’t get an undercollateralized loan until there is liquidity of loans for your demographic, and you probably won’t bother to build up your decentralized reputation until there is utility in doing so (like being able to get an undercollateralized loan).
2. You won’t bother to build a decentralized dynamic resume until there are employers that accept that resume. And there probably won’t be employers that accept that resume until there is a sufficient candidate flow with those credentials.

The flywheel for DID, courtesy Danny Zuckerman

In 2015-2017 it was all theory. In 2021, I am happy to say that there is strong momentum from a ragtag team of BUIDLers who have been focused on developing this infrastructure.I’d like to highlight some of these trends now to paint a picture of how this community is innovating and show the glimmers of progress that are beginning to bare fruit.

Infrastructure

These are the Infrastructure providers who are building the most promising decentralized user sovereignty/privacy preserving technology.

Ceramic by 3Box Labs

3box is a public network for dynamic information. Ceramic (which is the data storage network which 3box and its successor IDX is built upon) is a decentralized network for version controlled information managed by decentralized identities.

By combining IPFS, libp2p, blockchain, DIDs, and standards for authenticated data, Ceramic gives developers the ability to build completely serverless applications using dynamic, verifiable, decentralized identity and data.

There are more than 1,000 apps + 40,000 users on 3Box. Learn more about 3box at http://3box.io/

Spruce

By using DIDKit and Credible, Spruce allows statements about people, places, and things to be issued as a package, linked together, digitally signed, and cryptographically verified.

For example,

1. Users can demonstrate ownership of cross-chain accounts and dapp credentials to present to blockchain-based services and platforms.
2. Employees can receive digital proofs of employment to get a mortgage.
3. Gig economy workers can port their ratings from one system to another in a way they control.
4. Data sets can travel along with signed statements that they have been stripped of personally identifiable information.

By allowing data to move out of silos and increasingly into the hands of their owners, Spruce hopes to loosen the grip of a few large companies in owning everything.

Learn more about Spruce at https://spruceid.dev/docs/

The Graph

The Graph is a decentralized indexing protocol for querying networks like Ethereum, POA, Fantom & IPFS. Anyone can build public open APIs, called subgraphs, making data easily accessible.

Subgraphs can be composed into a global graph of all the world's public information. This data can be transformed, organized, and shared across applications for anyone to query with just a few keystrokes.

The Graph is a powerful tool to index reputational data on Ceramic and in decentralized ecosystems. Learn more about The Graph at https://thegraph.com/

BrightID

BrightID is a social identity network. It allows people to prove to applications that they're only using one account.

BrightID requires no personal information, letting you prove your humanness without risking your privacy.

Learn more about BrightID at https://www.brightid.org/

Idena

Idena is the first proof-of-person blockchain where every user has a cryptoidentity - one single account with equal voting power. Idena is currently one of the most decentralized blockchains: there are 6048 full mining nodes linked to distinct people.

Users can start earning UBI in the form of Idena coins if they verify their cryptoidentity. Idena does not require the disclosure of any personal data (no KYC). All users have to do is appear online at a certain time and solve a series of flip-tests (human made CAPTCHAs). It’s called a validation ceremony: a single person is not able to validate themselves multiple times since the validation window is open only for 2 minutes.

Learn more about Idena at https://idena.io/

dApps

These are the dApps that with beautiful, value-creating use cases are bringing real utility to end users.

Rabbithole.gg

RabbitHole is a dApp where users can earn crypto by using the most popular Ethereum applications and build reputation while doing it. Your wallet is your resume, and RabbitHole enables you the opportunity to earn tokens based on your transaction history.

Rabbithole runs campaigns with some of the most popular DeFi Protocols in the space to teach users how to become owners while earning their first tokens.

Learn more about Rabbithole at https://rabbithole.gg/

Gitcoin

Gitcoin is a community of 90k software developers building for the public good. Gitcoin’s mission is to grow and sustain open-source software, and so far $14M worth of software development has been funded through the Gitcoin platform.

Using Gitcoin, users can earn, learn, connect, and own a piece of the blockchain-based future — all while building their decentralized reputation!

Learn more about Gitcoin at https://gitcoin.co/

Disclosure: The author of this piece, Kevin Owocki, is a founder of Gitcoin.

CirclesUBI

Circles UBI uses a web of trust model to create sybil resistant (fake account resistant) identity. Once a user has a sybil resistant identity, anyone who joins Circles receives a basic income regularly, without conditions.

CirclesUBI is the largest web of trust graph in the crypto space with ~200k identities.

Learn more about CirclesUBI at https://joincircles.net/

There are dozens more!

Want to see even more DID projects in the space? Checkout the responses to this thread.

The Web of Trust

What is super cool about all of these providers is that (thanks to the W3C DID standardization) they are all interoperable with each other, and therefore the momentum created from each new dApp user compound on each other.

I envision a future in which new entrants to the system start building their W3C compliant reputation on rabbithole.gg, which is automatically imported into their Gitcoin profile, and they will have opportunities to leverage this data on 10s-to- eventually 1,000s of different sites across the dWeb.

Gitcoin Economic Graph: Each node in this graph is a contributor or a grant, and each edge is a transaction that funds the grant. With a decentralized reputation platform, you could take your economic/social relationships with you from site to site.

Figure 3: W3C Claims and Verifiable Credential Structure [editable diagram on Slide 5 of this link]

When decentralized reputation proliferates widely, we could see an emergent web of trust created, enabling more positive-sum games & repeat interactions between individuals. In such a web of trust, it would be easier to build trust with strangers as you can leverage the property of transference - ie, if a stranger is trusted by a friend you trust, you can build trust with that stranger more quickly.

The emergence of a decentralized web of trust - Wikipedia

Decentralized reputation, and the web of trust which emerges from it, will unlock a ton of value, and it’s already beginning to pick up momentum. It is even possible that it will drive enough newcomers to the space that it defines an entire market cycle of adoption into web3 technology —all the while creating major new categories of financial sovereignty for citizens of every nation, creed, and background across the world.

The future is bright for decentralized reputation on blockchain-based systems. Owning one’s reputation will be the catalyst that springs us forward to a new paradigm of an internet of value creation, and could even be the driver of the next crypto market cycle.

Special Thanks to: Disruption Joe, Matt Carano, Dave White, Rabbithole.GG, Idena, Upala, BrightID, The Graph, SpruceID, Danny Zuckerman, Vinay Taylor, Paula Berman, & others for reviewing drafts of this post.

Subscribe now

The Defiant is a daily newsletter focusing on decentralized finance, a new financial system that’s being built on top of open blockchains. The space is evolving at breakneck speed and revolutionizing tech and money. Sign up to learn more and keep up on the latest, most interesting developments. Subscribers get full access, while free signups get only part of the content. Click here to pay with DAI (for $100/yr) or sub with fiat by clicking on the button above ($10/mo, $100/yr).