This is the second installment of a two-part series on reputation systems in web3. Read part one here.

Web3 is based on the premise that each internet user will have a unique internet identifier, like an email address, that can be natively linked to any piece of software and stored on a blockchain. As part of someone’s “decentralized identity,” a portion of a person’s online activity would then be “on chain,” meaning that it would be public and easily searchable via their individual crypto wallet. 

With such decentralized identity — a readable history unique to each person — one’s crypto wallet would function as a sort of profile, similar to Facebook or LinkedIn. But unlike web2 profiles, decentralized identities are backed by hard evidence: a permanent, timestamped record of a person’s accomplishments, contributions, interests, and activities to date. 

If decentralized identity were widely adopted, people would be able to carry their full selves with them as they traverse cyberspace: their affinities and experiences reflected by what they’ve created, contributed to, earned, and owned online, no matter the specific platform. This would bring us closer to how things work in the physical world, where our possessions and reputations are attached to us, rather than to the spaces we occupy; we can take them with us and use them however we please. 

While it might sound far-fetched today, a real opportunity here is in leveraging on-chain reputation for off-chain uses. In the creator economy, for instance, we might see a web3 version of YouTube where the videos don’t belong to the platform, but to the creator. So the creator could bring their videos with them to any online space and reap any value tied to those assets. Likewise, on-chain data could be used to gauge engagement or interest in specific creators or brands. A music artist, for example, could easily identify their top fans based on platform-agnostic, on-chain interactions and reward them with exclusive access or other perks. In the financial realm, decentralized identity could enable an internet-native credit score, which might have applications for issuing loans, performing tenant checks, establishing credit, and beyond. 

Web2 to web3: Transitioning from fleeting “likes” to long-term reputation building

In contrast to most web2 profiles, decentralized identity is not ephemeral. This means that an NFT of a diploma in your crypto wallet, for instance, would turn into a permanent academic certification. Likewise, each piece of content you post online would be permanently linked to you (unless you choose to delete it). Moreover, with public histories it would be possible to prove that you were early to a trend or active in a project before it took off — like, say, being into Taylor Swift before she was popular or reading this article while web3 is still in its genesis. 

This persistence establishes new incentives for reputation-building: instead of creating temporary profiles like we do in web2, web3 promotes long-term thinking. If people were empowered to build and maintain permanent identities online, we believe that on-chain systems could encourage people to more carefully curate the reputation markers that they carry with them into the future. In this case, curating a permanent library of NFTs is higher stakes than, say, curating a series of social media posts, in that it’s a reputation marker that you carry with you across cyberspace. 

The infrastructure decentralized identity requires

If decentralized identity is the future of the web, then the contributions that you accumulate in your crypto wallet — the articles you write, the content you curate, or the things you buy  — will become very important. They’ll become the carrier signals of who you are online and the basis for your reputation.

But in order to mainstream decentralized identity, we must first establish systems that map people’s relevant off-chain experiences and affiliations on-chain. Then we must build mechanisms to standardize, process, and prioritize the influx of data that will be added on-chain. On the way, we’ll need to solve endemic challenges to decentralized identity, including the lack of context around on-chain records and issues around gaining access to the decentralized web.

From there, we can start to explore the many use cases enabled by factoring on-chain reputation into offline activities based on the openly queryable nature of decentralized identities. 

Mapping off-chain experiences and affiliations on-chain

At the moment, blockchain technologies are often opaque to the average consumer, largely configured for financial transactions. To make decentralized identity useful and widespread, it is important to introduce on-ramps for people to record their experiences and affinities on the blockchain, such as their educational accomplishments, professional achievements, or fanships. Some companies are already tackling this challenge. Violet aims to authenticate off-chain, personally identifiable information on-chain. Rabbithole, Polywork and 0xStation allow users to record professional achievements on-chain. And Koodos helps map disparate affinities on-chain by enabling people to turn any content on the internet into a customizable NFT, creating a collection that meaningfully represents who they are online. (Disclosure: Esber cofounded Koodos and Kominers provides market design advice for the company.)

There are two approaches to recording people’s activities and affinities on-chain: active and passive. Proof of Attendance Protocols (POAPs), which enable event organizers to produce tokens that attendees can collect, are an example of active recording. When people claim these tokens, they’re purposely recording a “life event” on-chain, making it a part of their digital identity in the process. Similarly, people might make active attestations of other people’s skills, character traits, or accomplishments by sending them tokens; these testaments can be verified through peer review or an assessment of activities on-chain.  

Alternatively, when a person’s wallet interacts with apps or sites, information about those interactions might be recorded passively. For example, if your wallet were attached to Discord and you earned server badges, those badges could be added to your on-chain collection.

Processing reputation data — and data standards 

Once all this identity data has been recorded on-chain, we’ll need systems in place to map and interpret it so that it makes sense to the wallet holder and those they interact with. Since wallets are also used for mundane content storage and transactions, this task is especially challenging: wallets accrue a lot of noisy data. 

For the sake of logistical simplicity (and because different facets of a person’s identity naturally overlap and interact), it makes sense to store one’s relevant activities and contributions in a single wallet. But any given person isn’t solely a creator, builder, investor, or collector; they’re many things at once. Thus, we need some way to take parts of their decentralized identity and showcase them in different digital spaces to distinct audiences. Imagine a design in which the wallet’s overall content was kept private, but accessing a specific facet of a person’s reputation required a specific access key.

It would also be useful to have more advanced versions of Etherscan — a navigator for transactions on the ethereum blockchain — that would allow users to view all of a wallet’s interactions within a specific type of activity, for example, activities associated with community service. 

And in addition to organizing the raw data, it’s important to have systems that aggregate and simplify the information contained in a person’s wallet to make that information more clearly interpretable and comparable across individuals. One recent example is a DeGen score, an interpretable measure of how “crypto-obsessed” someone is based on an aggregation of wallet transactions. Meanwhile, Ceramic helps applications keep track of high volumes of mutable data and encode relevant information on-chain, allowing viewers to compare people’s contributions to distinct projects at a high level. 

Managing reputation information also requires publicly accessible data standards — agreed upon formats for, say, “what an attestation of a contribution looks like” or “how to formulate an on-chain record.” Structuring these inputs to reputation ensures interoperability, both (1) enabling people to meaningfully combine parts of their decentralized identity from different services and (2) minimizing friction for platforms to interact with different facets of a person’s on-chain reputation. 

Challenges to mainstreaming decentralized identity

Of course, there are innate challenges to building the decentralized identity system described above. The existing technology that records inputs tends to be very primitive — mostly limited to transaction histories — but something as subjective and complicated as identity will require considerably more context. Contextualizing information explains why you’ve earned or bought an artefact. Earning an NFT for a contribution to a project, for example, should provide context about why you earned it and what skills you demonstrated. Buying digital art should include context on why you bought the art, what it made you feel, or what you thought about it.   

A system built around permanence also presents challenges around escaping past versions of one’s identity, as is evident in credit scores and other long-run reputation mechanisms today. It can mean that you never escape a mistake.

In addition, crypto wallets offer little protection against data being lost or compromised. Before crypto can serve as a mainstream repository for identity and reputation, it will need to provide the sorts of security protections we are used to from other services.

More broadly, it is essential to expand access to sources of on-chain reputation. At present, crypto tends to skew affluent, male, and white. If the playing field for building on-chain identity isn’t leveled, this new source of reputation will accrue primarily to the already privileged, exacerbating existing social and socioeconomic divides. 

Decentralized identity will result in downstream opportunities

Despite these challenges, we believe on-chain reputation will unlock a wide array of use cases. Some of these uses are explored below, but many are beyond our ability to imagine yet. By moving identities on-chain, we could upend archaic financial processes and provide equitable access to capital, re-architect how talent is matched with projects, and provide entirely new paradigms for recognizing and compensating labor online. 

Traditional financial systems make it very hard to shape — or even access — one’s own credit history. The portability and accessibility of decentralized identities, on the other hand, could allow us to significantly disrupt how our reputations are used within our current financial systems. For example, on-chain reputations could enable an internet-native credit score that would unlock a variety of financial use cases, including issuing loans, performing tenant checks, or establishing credit. 

Moreover, on-chain systems are easily portable across borders and applications, unlike current credit scoring systems. Here especially, however, there needs to be strong consideration of how users might be able to add context and curate their permanent public histories to avoid undue prejudice. It would be important to circumvent the digital equivalent of getting evicted, hindering your ability to obtain future housing. 

In the realm of talent sourcing, decentralized identities promise “open CVs” based on fine-grained records of professional activities and accomplishments. This could allow for a fuller picture of someone’s past work and provide more granular insight into their skills and contributions. 

Though recording and storing professional activities at this level would be complex, the aggregation of such activity on-chain would be much faster to assimilate and act on than static user-generated professional profiles, such as those on LinkedIn.This opens up use cases around facilitating talent matching. Imagine a version of Behance in which a designer’s portfolio is populated based on automatically tracked and verified projects, thus enabling direct, blockchain-mediated recruitment. 

Additionally, there’s a whole class of applications based around the use of reputation to incentivize new forms of creation or contribution. Currently, it is difficult to decipher who is a subject-matter expert and to recognize and reward them. With decentralized identities that track contributions across the internet, we will be better able to gauge how early someone was to a topic or trend and how much value someone is contributing to a subject matter. Startupy, for instance, incentivizes experts to contribute startup knowledge and gain an internet-wide reputation in specific domains. 

The wealth of information stored on-chain could even upend markets as big as search and discovery. A range of matching algorithms will be enabled by the openly queryable nature of decentralized identities; whereas previously, matching algorithms could only be developed by whoever had access to our data. Additionally, until now we’ve only been able to measure how much value people associate with content based on basic engagement metrics, such as how much time they’ve spent on an app or whether they clicked “like.” If we had a better understanding of people’s willingness to pay for distinct pieces of content, we would have a better perspective on magnitude of engagement or interest. 

Furthermore, if every piece of content on the internet were truly composable or remixable, it could be possible to gauge which content inspires further creation, or is the most meme-able. This would offer a new way to surface content, similar to TikTok’s system. Finally, and perhaps the most disruptive of all, people could become the new platforms for discovery — especially is incentivized through token models.

Derived on-chain reputations will bring about massive opportunities for business and society. But as we traverse this new territory, we will be forced to consider the implications of permanence. Inevitably, we’ll need to find a balance between what is ephemeral and what should be forever.

If we progress toward an internet in which our identities are tied to us instead of being scattered across siloed spaces on the web, we’ll get closer to how things work in the physical world: our online possessions will belong to us and we’ll be able to take our full, authentic selves across cyberspace. 

This is the second installment of a two-part series on reputation systems in web3. Read part one here.

Acknowledgments: Thanks to Mike Bodge, Chase Chapman, Joey DeBruin, Abigail Fradkin, Default Friend, Jonathan Glick, Andrew Hong, Jihad Esmail, Nir Kabessa, Metadreamer, David Phelps, Brenner Spear, Danny Zuckerman, Curtis Roach, and Andrew Wang for their input and insight into this topic.

Disclosures: Jad Esber is an investor in a number of NFT and DAO projects. Scott Kominers provides market design advice to a number of marketplace businesses and crypto projects, including Novi Financial, Inc., the Diem Association, Koodos, and Quora.

  • Scott Kominers is the MBA Class of 1960 Associate Professor at Harvard Business School and a Faculty Affiliate of the Harvard Department of Economics. He advises a range of marketplace startups and crypto projects.

  • Jad Esber is cofounder of the web3 company Koodos and is an affiliate at the Berkman Klein Center for Internet & Society at Harvard. He previously worked at YouTube, building tools for creators and artists.

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