Regulatory compliance has been a headache for years now in the crypto space. Financial regulation authorities such as the SEC have been, for years, trying to pin down Cryptocurrencies as securities so that they can regulate them. Some cryptos, such as XRP and, recently, Amp token have been caught in the cross hairs of the SEC.
So far, Web3 compliance has been difficult, even though DeFi protocols with users from many different nations need to adhere to them. Here is why SSIs can soon make the problem of compliance a non-issue.
Self-Sovereign Identities (SSIs)
Do you own an Identification card (ID) issued by your country’s government? Do you have an email address issued by an email provider such as Gmail or Yahoo? For the majority, the answer is yes. This is a classic case of how our identities are currently owned and controlled by the governments and other third-party providers. All people in a nation are registered in a national registry system. If the system were to be compromised or failed for any reason, then compliance (with any number of services) would not work.
This is where SSIs come in. SSIs are generated by the user and not by any government or 3rd party provider. The SSIs can be linked to KYC and credit scores and are verifiable on-chain. Moreover, the user’s identity is kept private and only shared when required.
As Web3 becomes popular, there should be a Web3 to identify yourself – SSIs are this Web3 way.
Components of an SSI
To create a successful SSI for yourself, you would need three components:
- A decentralized ID (DID) – This would be like a social security number and would be complete;y unique to you.
- A verifiable credential(s) (VC) – This can be a credit score, Academic qualification, or even KYC.
- On-chain issuer registries – This refers to issuer records or registries on the blockchain. They can belong to any institutional body such as banks, colleges, governments, etc.
The DIDs will be stored in your wallet and can serve as identities for any Web3 citizen. The VC can be attached to the DID and verified without contacting any 3rd party issuer or government.
How Do SSIs Work?
The user will derive their DID from their email or Metamask keys and then store the DID in their wallet. With their DID, they can request a digitally signed VC from issuers. Therefore, when DeFi protocols on Web3 ask users to verify their identities, they can just use the SSI to reveal only a part of the required information without exposing everything about them.
SSIs successfully incorporate zero knowledge (zk) proofs in decentralized blockchain identity.
