These days, crypto investors are focusing too much on tokens, and it’s understandable: bullish cycles create excitement. But what if I told you tokens alone won’t define the next evolution stage of the internet?
Digital identity, including the way we authenticate, transact, and establish reputation, is poised to become the real building block of the internet’s next iteration.
Let’s explore what Web3 identity is and how it can transform our online interactions.
What is Web3 identity?
Web3 identity refers to digital identity systems built on decentralized infrastructure, giving users full control over their personal information and credentials.
In today’s digital age, the internet has become ubiquitous, and we all depend on different methods to prove our identity when interacting online, whether shopping, subscribing to services, signing up on social media platforms, or applying for jobs.
Web3 identity is like having a digital passport that would provide access across Web3, making online experiences more convenient. The exciting part is that holders have full control over their identity, which cannot be altered or shared without their consent.
Unlike say Gmail, which can also open many doors online, a Web3 “passport” doesn’t reveal data to Google and its affiliates. Instead, it’s built on top of blockchain to store personal data without intermediaries in a trustless environment.
Web1, Web2 and Web3 identity compared
Web3 identity builds on Web3’s promise of decentralization, transparency, and user control, addressing the need for secure authentication in trustless environments.
It borrows the best aspects of Web1 and Web2 identities, using decentralized infrastructure to enable self-sovereign ownership of data.
Back in the 2000s, Web1 identity systems required users to create individual usernames and passwords for each online platform. Users often took shortcuts and repeated credentials for convenience, but that weakened security.
To eliminate the need for keeping a notebook with all the passwords, Web2 identity introduced social logins, allowing users to sign in on multiple platforms with their Google or Facebook accounts. While more convenient, this approach gave tech giants massive influence, raising concerns about privacy and data sharing.
For example, in 2018, a whistleblower
With the expansion of blockchain and decentralized applications (dApps), Web3 offers the technological foundation for the best online identity version so far. It uses decentralized identifiers (DIDs) to empower individuals to control their personal data and share it across dApps selectively.
Web3 identity marks a U-turn from platform-controlled access to user-controlled digital sovereignty.
|
Era |
Years |
Identity Model |
Key Characteristics |
|---|---|---|---|
|
Web1 |
1990s – 2000s |
Usernames & Passwords |
Isolated, repetitive logins |
|
Web2 |
2000s – present |
Social Logins |
Reliance on tech giants, data shared with platforms |
|
Web3 |
~2020 – present |
DIDs / Self-Sovereign |
User-owned, portable, privacy-preserving |
The problems with the current digital identity
Web2 identity models have been used worldwide not because they are ideal but because there was no alternative offering the same level of convenience. Otherwise, their centralized approach presents major problems, such as single points of failure, privacy risks, and data misuse.
For more than 20 years, people all over the world have entrusted their personal data – including name, date of birth, phone number, social security number, and bank account details – to third parties.
With so much data at hand, are companies taking full responsibility for data security? History shows a grim picture. Data breaches continue to occur. For example, in 2022, a hacker
“We do not have an adequate level of control and explainability over how our systems use data.”
The level of negligence is staggering, as the company doesn’t even know where our data goes.
You would think that governments would act more responsibly, but they’re usually more preoccupied with mass surveillance. For example, the
How Web3 identity solves these problems
Bitcoin emerged in 2009 to challenge traditional finance, but next-generation blockchains went further to transform the entire experience online.
Web3 identity relies on blockchain infrastructure to offer a decentralized model that takes control away from Facebook-like centralized platforms and gives users full control over their personal data. This is probably the first time in history that you can have control over your digital identity and use it conveniently.
This is possible thanks to three key pillars:
- Blockchain and Smart Contracts — As mentioned, blockchains act as the foundational infrastructures that offer secure, decentralized storage of data, enabling automated verification.
They are distributed ledgers that process transactions and updates without any centralized intermediary, eliminating the single point of failure risk.
Thanks to smart contracts – self-executing programs – blockchains like Ethereum and Solana can host all kinds of dApps, including tamper-proof identity apps. - Decentralized Identifiers (DIDs) — DIDs are blockchain-based identifiers fully controlled by the users and tied to their crypto wallets. These self-owned unique identifiers are cryptographically verifiable and independent of any centralized authority. People can create multiple DIDs for different purposes. Having multiple DIDs makes it harder for third parties to track and correlate on-chain data for profiling.
- Verifiable Credentials (VCs) — VCs are digital certificates that are cryptographically signed and tamper-resistant. Thanks to them, users can prove specific facts, such as age or education, without exposing unnecessary details. Tied to DIDs, VCs can be shared selectively, allowing users to hide the information that is not required.
With decentralized systems, there is no single database to be harvested by third parties for mass profiling and advertising.
Why identity matters more than tokens
Crypto investors are usually focusing on speculative tokens, hunting for profits. However, while tokens capture headlines, they are cyclical and often don’t solve real issues – think about meme coins.
Web3 identity is overlooked, but it addresses a fundamental need, which is a secure digital identity model that would enable us to prove who we are and help us interact securely in the digital space.
In August 2025, a record 3.6 million new crypto tokens were created, but the majority of them are not relevant at all.
Web3 identity has more long-term value than speculative tokens because it solves real problems, which will lead to its mass adoption.
Benefits of Web3 identity
While Web3 identity empowers users by giving them full control over their data, it benefits both individuals and organizations. Well… except for a few tech giants.
For Individuals
- Full control over digital identity and personal data
- Unmatched security thanks to blockchain technology
- Stronger privacy with DIDs selective data sharing
- Portability across dApps and platforms
- Single login instead of multiple usernames and passwords
- Greater trust in online interactions
For Organizations
- Reduced fraud through cryptographic verification
- Faster onboarding with reusable credentials
- Stronger customer trust and relationships with business partners and users
- Easier regulatory compliance with secure credentials for KYC/AML
- Access to tamper-proof, verifiable identity data
How Web3 identity is used today
Web3 adoption accelerates the use of decentralized identity, with many tools and platforms facilitating Web3 identity management.
Some platforms go further by integrating biometric data. For example, Worldcoin, whose governance token represents a $2.7 billion market, introduces a
Elsewhere, Polygon uses zero-knowledge proofs (ZKPs) to offer a privacy-oriented digital identity solution called Privado ID. It allows users to manage their credentials on their devices, facilitating secure logins without passwords.
Similar ID systems include Fractal ID, with over
An interesting Web3 identity feature is the soulbound token, which is a non-fungible token (NFT) that incorporates the traits and achievements of an individual or organization. However, unlike NFTs, they cannot be traded on exchanges.
Challenges to adoption
Web3 identity has transformative potential and brings more value than speculative tokens, but adoption is currently lagging due to several challenges, including:
Interoperability
Fragmentation is one of the biggest problems in crypto, with many blockchain networks relying on vulnerable bridges to communicate with each other. Also, there is no global consensus on DIDs and ID standards.
Complexity
One of the biggest barriers to Web3’s mass adoption is user experience. Instead of clicking on a pop-up window, managing cryptographic keys and navigating new systems requires some technical understanding and effort.
Scalability
Most DID and verifiable credential systems have limited adoption and aren’t stress-tested at a global scale. The good news is that next-generation chains like Solana, Sui, or Aptos can ensure high scalability and low costs.
Regulatory Uncertainty
Major jurisdictions like the U.S. are barely catching up with establishing clear rules for crypto assets, and they’re still developing frameworks for decentralized identity. Also, different frameworks may cause additional fragmentation.
Security Risks
“Self-sovereign” shifts risk to individuals. Losing a private key can mean losing your identity. Phishing and wallet-draining scams can exploit identity-linked wallets, especially in the case of non-tech-savvy users.
The future of Web3 identity
According to a
After addressing the mentioned key challenges, crypto communities will realize the potential of having full control over personal data, shifting their focus from speculative tokens and adopting smart wallets with built-in ID features.
Web3 may gradually focus more on utility, with decentralized identity unlocking access to a wide range of services.
In decentralized autonomous organizations (DAOs), voting and membership will rely on verifiable credentials rather than wallets that can be easily targeted by sybil attacks.
In decentralized finance (DeFi), identity will maintain privacy while reducing.
Web3 social platforms and the metaverse will also benefit, as gamers and participants will bring trusted, portable identities.
Conclusion
Tokens make all the noise on social media, generating short-term excitement when they rally. However, it is identity that unlocks the deeper value of Web3.
A self-sovereign, portable, and interoperable identity empowers each individual who navigates the Web3 space while benefiting from the convenience of Web2. It allows individuals to have full control over how data is used online while giving organizations and dApps reliable and verifiable credentials.
By combining trust, reputation, and usability, Web3 identity lays the foundation for the internet’s next evolution step. Tokens will come and go – millions of them – but Web3 identity represents a lasting, future-proof layer of infrastructure.