On-chain identity and digital RMB are the keys to unlocking the adoption of Web3 in China.

Since 2017, domestic development in blockchain technology, the establishment of consortium chains, and exploration of practical applications has achieved preliminary development, demonstrating the technical strength and willingness to progress in the development of Web3 in China. We have already had many BaaS solutions and consortium chain services.

Looking at the form of blockchain, we can simply divide distributed ledger protocols into: private chains, consortium chains, manageable blockchains, and public chains based on dimensions such as degree of decentralization, access methods, and ecological applications. Last year, I proposed that the classification standard of blockchain is a spectrum, and the specific form changes with the degree of ecological openness.

The “manageable blockchain” may be a middle ground between the two forms. Naturally, people would think that those leaning more to the left are closer to Web2, and those leaning more to the right are closer to Web3.

But we believe that the current process of domestic Web3 is still lingering at the entry level, and the blockchain ecosystem based on private chains and consortium chains still finds it difficult to achieve the localization of Web3. This article mainly discusses the difficulties of Web3 landing in China and feasible solutions to these problems.

My Understanding of Web3

Firstly, from a traditional perspective, the development from Web1 to Web2, and then to Web3 progresses in chronological order. The earliest Web1 was a one-way information internet output platform, followed by the Web2 platform with two-way information interaction, such as Taobao, WeChat, and TikTok, which connect information providers on one end and product consumers on the other end. Web3 attempts to innovate at the next level of the platform, the “protocol layer”.

This is, of course, a correct approach. However, for easier understanding, I prefer to look at it from the top down.

Web3 evolves over time, with changes occurring first in the upper-level content, then in the platform, and finally in the protocols. This kind of change is a bottom-up relationship that becomes increasingly deep, which in turn drives changes at the top.

For example, the development of platforms has changed the content production model and content producers. Whether it’s TikTok, Weibo, or Twitter, they have provided new content creators with a stage to showcase their talents, rather than the traditional media channels like Yahoo and Sina News that were initially focused on news reproduction.

Similarly, when there is an open blockchain protocol, and earth-shaking changes are made at the protocol level, it will drive the emergence of new types of platforms. These new content platforms can promote the creation of content at the upper level.

Web 3.0 drives changes in protocols, enabling the Web 3 protocols we see today to be anti-monopoly, allowing users to own their own identities and data, ensuring service accessibility, making all interfaces programmable, standardizing information data, and making the code open source. These characteristics can be summarized in two core features: permissionless and composable.

We have already explored many aspects of blockchain technology, such as the popularization of digital collectibles in China in recent years, the rapid growth of digital collectible platforms, and the launch of blockchain technology platforms and underlying protocols by tech companies. But does this mean that we are already on the track of Web 3 development?

It is regrettable that today’s Chinese Internet applications are severely lacking in permissionlessness and composability. Personally, I believe that the application of Web3.0 in China is more stuck at the Web2.1 stage, and I hope to make further progress from the 2.1 stage to truly achieve the essence of Web3.0. I think there are answers to how to achieve “permissionlessness” and “composability” in the Chinese context, how to make permissionlessness manageable and controllable, and how to achieve completeness in composability.

On-chain Identity Enables Managed Permissionless Access

On-chain digital identity is key to ensuring that permissionless systems can both encourage innovation and prevent malicious behavior. As we develop web3, “permissionless” needs to be limited. We aim to create an open and inclusive environment for development and use, leveraging the incentive for innovation inherent in permissionless systems, while also avoiding the misuse of “permissionless” for malicious purposes. At this point, on-chain digital identity plays a role in ensuring innovation occurs and in preventing costless wrongdoing.

On-chain digital identity is a digital persona fully controlled by the user. A natural person can have multiple on-chain identities based on their on-chain behavior. These identities can be authenticated by KYC (Know Your Customer) institutions based on on-chain behavior requirements, and can also include specific scenarios such as professional qualification certification and academic degree authentication. On-chain digital identity (different personas) allows users to have a digital identity on the chain, which can be a real-name association off-chain or an anonymous front-end with separation. However, user identities are owned by individuals and managed within a unified underlying blockchain, rather than relying on a specific platform.

Users can have control over their identity data and incorporate it into different digital personas. This data can be authenticated by offline certification authorities, such as public security authorities authenticating ID card information, academic institutions certifying educational qualifications, and professional qualification institutions certifying professional abilities. It can also be combined with biometric methods, allowing users to have a virtual online digital persona.

When you need to prove yourself to others, you can demonstrate that there is a real person behind you. These on-chain identities provide identity accounts for various applications in the upper layer, such as production, consumption, and entertainment. These upper-layer applications provide a variety of application scenarios for the on-chain identities in the lower layer. These identities will become a vast pool of user accounts, and any upper-layer application with good enough service can obtain more genuine users from the lower layer, instead of being a closed system like today’s Alibaba or Tencent, where your Alibaba user account cannot be used elsewhere. This is an on-chain identity controlled by the users themselves.

On-chain digital identity is different from DID (Decentralized Identity). DID is an identity center based on decentralized identity protocols, where users can directly own and control the document information associated with them, and users can control these documents through digital signatures.

In the development process of the Internet, we have not implemented a universal native identity layer in the network. Similarly, users do not actually own their online identity.

Technically, Web3 provides a way for users to actually own the ownership of their personal accounts. However, on-chain identity currently cannot solve problems such as Sybil attacks, and due to the lack of compliance verification and biometric recognition, establishing false identities may become a fixed industry. From a scenario perspective, DID still lacks a clear use case and business model, and most projects are still in the concept verification stage.

Therefore, while supporting this on-chain identity, we bind the user’s native identity, that is, a digital identity on the chain that combines Web3 and Web2 identities, balancing openness and security. This on-chain digital identity can not only serve as a permission certification for Web3, achieving interoperability within the Web3 ecosystem, but also introduce scenarios and users associated with Web2 identities onto the chain.

DID is the foundation of the metaverse, and the development of on-chain digital identities in our country will follow the innovation of the DID identity model, while introducing KYC authentication to achieve open and interconnected identity data. Based on the trusted credentials on the chain, a digital portrait and real identity authentication are realized, creating a three-dimensional, multi-faceted, chain-off linkage, and secure and trustworthy digital identity image, thereby promoting the true role of permissionless attributes.

Digital Yuan Assumes On-Chain Payment Functions to Achieve Complete Composability

Currently, the private and consortium chain systems we have developed lack composability. First, developers and users do not have control over their own accounts and data, and the foundation of composability is missing; secondly, the payment function is disconnected from on-chain business, making it impossible to aggregate multiple instructions in a single transaction.

It is difficult for us to imagine how a Web3 ecosystem that cannot achieve composability can be established. Although composability plays an important role in improving efficiency and paradigm innovation, the composable functions also bring composable risks. Therefore, we need a payment business that can be compliantly connected to the chain, as well as a risk control system based on on-chain digital identity.

On-chain digital identity is the foundation for the digital currency of the people (DCEP) to enter the on-chain ecosystem. After we have an identity, we also very much hope to have compliant financial institutions operating the on-chain RMB.

With an on-chain identity, a payment layer, and an application layer, we can include all transactions, transfers, and other behaviors in an underlying tamper-proof distributed ledger, which contains identity information, payment fund flow information, and transaction data information. At this point, better control can also be achieved, and all behaviors can be coupled and atomically placed together. These numbers are encrypted, and only the parties involved in the transaction can open these data to prove to others, or by regulatory authorities to open and identify the encrypted information.

On-chain digital identity provides a mutually recognized and universal identity identification for composability; the on-chain digital RMB scheme can make payment a native function of on-chain applications and an authenticated on-chain digital identity system, thus enabling composability to help on-chain businesses achieve a closed-loop effect. On-chain digital RMB payment is the key to achieving composability. The on-chain RMB is beneficial for the development of the ecosystem and determining the authenticity of transactions, thus facilitating regulation. After supporting on-chain digital identity and on-chain RMB:

• All transactions occur within the general ledger

• All entities have digital identities

• All transactions are genuinely occurring

• Payments and actions correspond one-to-one

• Result: Encourages permissionless innovation while providing convenience for regulation.

There has been a high demand for establishing an effective regulatory framework for Web3 and blockchain technology, especially against the backdrop of the current global competition in the Web3 field, where effective management solutions are urgently needed. This can eliminate unnecessary speculation in the Web3 world due to a lack of clarity, allowing new standards to emerge. All projects can benefit from feedback as the number of users grows, which will further promote innovation. We believe that on-chain identity and on-chain RMB are the foundations of this trend.