How NFTs Will Drive A New Frontier For Digital Identities In The Metaverse

Web3, also known as the decentralized web, promises a future where users interact with applications and services via blockchains, unlocking new business value for companies while empowering users with control of their data and protection of their data and privacy. Yet for Web3 to be truly successful and gain mass adoption, the traditional Web2 digital identity model must embrace the concept of decentralization where users own and control their identities and data.

“Digital identity is essential to the growth and viability of our digital economy, and fundamental to every organization, across every sector. It enables organizations to build trust with their customers, streamline and secure their operations. To succeed, the reimagining of digital identity is needed. Collaboration in digital identity across sectors and organizations is crucial to foster growth and deliver better business outcomes in the digital world” says Accenture in the World Economic Forum report “Reimagining Digital Identity: A Strategic Imperative.”

This “reimagining of digital identity” could come in the form of cryptocurrency-based NFTs also known as non-fungible tokens combined with the decentralized nature of Web3.

Metaverse games and NFT IDs

Ethereum co-founder Vitalik Buterin recently wrote in a blog post about the online game World of Warcraft's concept of “soulbound items” as NFTs. In-game soulbound items such as weapons and armor, once acquired, cannot be transferred or sold to another player, and, in a sense, become part of the game character’s permanent digital identity.

“NFTs in their current form have many of the same properties as rare and epic items in a massively multiplayer online game. They have social signaling value: people who have them can show them off, and there's more and more tools precisely to help users do that. Very recently, Twitter started rolling out an integration that allows users to show off their NFTs on their picture profile,” says Buterin.

Attaching or associating NFT items to a user identity while making them easy-to-use, private and secure, however, remains a challenge.

Smart contracts, fat contracts and digital IDs

In the blockchain world, Smart Contracts are applications deployed on the blockchain. They are executed and settled by cryptocurrency miners and the execution is irreversible with all historical transactional data stored and attested to on the blockchain. Because execution results are immutable, Smart Contracts are a great choice for implementing financial crypto tokens or NFTs.

Smart Contracts do have limitations, however. Metaverse games, for instance, introduce complicated computation tasks including game server logic execution and rendering beyond only account balance and NFT ownership management. For now, although in-game tokens or characters can be stored on a blockchain, the decentralized world itself is still backed by centralized servers and with limited identity capabilities.

Conversely, “Fat Contracts,” as I like to call them, are a relatively new concept that act like traditional internet applications with the decentralized and trustless feature of blockchain technology. They can support real-time compute-intensive tasks, and access web services and APIs such as digital identities, even if they are not operating on a blockchain. The Fat Contract design of off-chain contract execution complements Smart Contracts yet also has the capability to incorporate digital identities within a gaming metaverse.

Fat Contracts can also solve storage and high-speed processing of massive data, connect Augmented Reality and distributed storage solutions, provide low-latency responses for user requests and truly realize the vision of the Web3 metaverse. Moreover, Fat Contracts allow access to off-chain internet services by safely delegating complicated asynchronous requests for fat contracts.

One of the best use cases for Fat Contracts and the future concept of incorporating Digital IDs with NFTs is with metaverse games and worlds. Inside a world like this, game character entities are NFTs and use Fat Contracts to tie in-game and off-chain identities to external social media platforms and services such as Twitter, TikTok, or Instagram. NFT attributes are thus “soulbound” similar to World of Warcraft but with the added capabilities that let users utilize decentralized Web3 services.

It is Web3 infrastructure that provides a global decentralized network of computation nodes that offer high-performance services without relying on any specific cloud service vendor. A way to think about how this functions is that workers run their programs in ‘secure enclaves,’ effectively a privacy technology already embedded into modern processors, which enables versatile and confidential execution. Together, this creates the infrastructure for a powerful, secure and scalable trustless computing cloud. And that trustless Web3 property is what sets the world – and its metaverses – for a future based on a reimagination of digital identity.

(Marvin Tong is CEO of Phala Network, a trustless computation platform)