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Web3 and digital identity

Digital identity, and in particular self-sovereign identity (SSI) is key to enabling Web3 as it’s all about decentralisation and data privacy.

Web3 enables data owners to be in charge of their data.

If Web2 was characterised by careless data sharing and its uncontrollable exploitation for commercial purposes, Web3 shifts that paradigm towards enabling data owners to be in charge of their data. The latter is possible thanks to SSI – a method of identity that centres the control of information around the user, removing the need to store personal information entirely on a central database. This article looks at Web2 and Web3 specifically – if you’re after Web5, take a look here as we compare Web5 to self-sovereign identity.

Defining Web3 vs Web2

As it stems from its name, Web3 is a third version of the internet. Compared to our current internet state of play, Web3 could well be perceived as a knight in shining armour.

Web2 was/ is the internet of sharing and connecting across a boom of social media applications that resulted in a handful of tech giants pretty much controlling the entire data space. The latter has been heavily exploited by those tech giants themselves and third parties.

Cybercrime, identity thefts, data selling without consent, leaking or hacking are also defining features of our current state of the internet. Only identity theft losses cost $502.5 billion in 2019 and increased to $712.4 billion in 2020.

The key features of Web3 versus its previous iterations are decentralisation (peer-to-peer interaction without a central authority), openness, ownership and control of data, enhanced security, and the use of blockchain as its core technology. Since Web3 is built on blockchain technology, it ensures that tampering with any records is impossible.

Although the Web3 space is currently developed by startups and a number of not-for-profit organisations, the likes of Microsoft, Intel Corporation, and NVIDIA Corporation have started investing in the space.

Last year [in 2021] we saw Google, Apple and Mozilla object to one of the key open standards (W3C DID) for self-sovereign identity as it threatened their entrenched positions (e.g. Apple storing and monetising your driving licence in the US).
Fraser Edwards
CEO and co-founder at cheqd

Web2 vs Web3

What does Web3 mean in practice?

What sort of changes can we expect from a user perspective? The most exciting things come from the identity space.

Identity in Web3

As the idea of full decentralisation and data privacy are defining of Web3, identity plays a critical role in making them a reality.

Web3 is first of all about privacy, control, openness and interoperability. It, therefore, needs to be designed on open standards – with self-sovereign identity (SSI) and verifiable credentials hopefully playing a pivotal role here.

cheqd Use Cases - Community Credentials
The utility and relevance of SSI and digital identity have become increasingly apparent as data leaks and hacks have exposed the vulnerability of individuals’ data, while the increased attention on the huge profits that social media giants generate by monetizing such data has helped to make people more aware of the value of their personal information
Fraser Edwards
CEO and co-founder at cheqd

Self-sovereign identity in Web3

Self-sovereign identity (SSI) is arguably the most effective way of digital identity for Web3. SSI is a method of identity that centres the control of information around the user. Fully in line with Web3, SSI removes the need to store personal information entirely on a central database and gives individuals greater control over what information they share safeguarding their privacy. It’s a fully user-centric and user-controlled approach to exchange authentic and digitally signed information in a much more secure way.

This level of verified, and decentralised trust, will be essential in combining data elements together for a unified and open Web3.

Use case of SSI in Web3

Use cases of SSI in Web3 are plentiful. Anything on decentralisation (hint, SSI also has a wide application in a centralised world) welcomes SSI with arms wide open – NFT, metaverse, gaming, Decentralised Finance (DeFi), Centralised Decentralised Finance (CeDeFi), peer-to-peer transactions.

“Open standards and the interoperability of digital identities will play a crucial role in the pursuit of a multi-chain ecosystem that offers reliability and scalability of everything from payment rails to community-building,” says Fraser Edwards, CEO and co-founder at cheqd.

cheqd Use Cases - Regulatory Compliant DeFi

DeFi, CeDeFi in Web3

Identity verification remains equally required within both DeFi and CeDeFi, and with unsatisfactory know your customers (KYC) the need for an efficient and privacy-preserving solution is pressing. SSI creates a perfect identity layer, a bridge between traditional data-heavy interactions and an anonymous DeFi approach, while CeDeFI will provide the financial infrastructure for SSI adoption in a key market. SSI meets perfectly CeDeFi’s vision of providing a spectrum of financial services without the need to worry about whether they are centralised, decentralised or what technology they are built on. The blending of CeFi and DeFi also prevents the need for multiple, siloed identities, which is the problem SSI is built to solve.

NFTs in Web3

Within the Non-fungible Tokens (NFT) space, SSI helps to prove who created, owned and/or currently owns NFTs across their lifecycle as well as providing ownership of fractions. Regardless of the ledger NFTs are hosted on, SSI also solves the provenance issue. The beauty of SSI is that it also enables the consumption of media/content directly from the creator without a distribution channel, which makes a fully decentralised content consumption a reality. This can help creators interact directly with the audience, and importantly ensure their fair payment.

cheqd Use Cases - NFT
cheqd Use Cases - SSI for Gaming

Gaming in Web3

But this isn’t it yet – pretty exciting things start emerging once you stir together NFTs, SSI with gaming. NFT and SSI combined unlock a whole new gaming experience. While NFTs are fantastic to capture uniqueness and scarcity, SSI is perfect for storing and updating characteristics, especially when those characteristics are specific to the player.
Imagine porting progress/experience and items between games. No longer downloadable content (DLCs) is locked into one platform, and your progress in one game can let you skip the initial tortuous grind of another. NFTs can replace DLC items so that they can be ported between games or ecosystems whilst maintaining their scarcity. SSI can then bridge achievements and experience, so progress is no longer lost once you stop playing a game and move on to the next in the genre.

Metaverse in Web3

Whether within the gaming industry or beyond, verified and interoperable data will be paramountly important in the metaverse. This applies on many levels – from original identity verification, when you create a user profile, to countless transactions within the metaverse, such as the ability to create, buy, and move your avatar or digital objects/assets from one dimension of a metaverse to another.
Authentic data ‘Credentials’ could tie in verified records of the players’ accomplishments in a game, giving that player a permanent, verifiable copy of their in-game accomplishments and rank which they can carry with them on their metaverse journey. Also, the addition of verifiable credentials to establish trust in avatars, profiles and in-game items will become an essential piece of the metaverse toolbox

cheqd Use Cases - Citezens & Governments

However, the metaverse won’t materialise overnight; rather it will take a transition process with many participants developing exclusive or integrating its elements in their offerings over time. By its very essence, this makes it a very decentralised concept. As such, and in line with the Web 3.0 vision, its requirement for identity verification and trusted data elements should also be fully decentralised, hello SSI.

Use Cases - Ecommerce Retail

Payments & transactions in Web3

Another hot topic that is going to be important in Web3 is identity tied to payments. There are currently no ways to verify the identity of the payment receivers in Crypto/ DeFi transfers beyond the wallet address. It’s a common issue for both low-volume and increasingly high-value transfers. While the need for anonymity in Crypto is highly appreciated, there are occasions when it’s required to verify who is receiving funds.

Within the Crypto and DeFi space, SSI enables peer-to-peer (P2P) transactions. One can share a small piece of identity information, i.e. a Telegram handle, to prove who they are without disclosing their identity publicly. This means no more test payments to check wallets. Another option is doing KYC’ed loan pools without storing the data — instead, only keeping ‘yes’ or ‘no’ answers.

Official ID in Web3

From a legal perspective, many government and public bodies are already considering the use of SSI technology for electronic identity verification. The European Commission, United States and Canadian, as well as Australian governments, have led, or intend to lead, initiatives to actively promote the use of SSI to streamline their e-government services or national data processes.

cheqd Use Cases - NFT


Of course Web3 won’t happen overnight, but the foundation has been laid and the direction of travel is rather clear. With the adoption of identity solutions such as SSI, the proliferation of blockchain technology use, and its interoperability this shift is already happening. Is it only a matter of time until we wake up to a decentralised world?

Given the importance SSI plays in enabling Web3, take a look at the most comprehensive list of self-sovereign identity use cases in Web3.

Self-sovereign identity

How big is the market opportunity?

The report aims to establish a baseline total addressable market for self-sovereign identity specifically, which can then be iterated upon by the community.

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