How to Leverage Staking Mechanisms to Secure Users’ Digital Identity Verification
Investors are gradually switching from bank savings and holding idle crypto to staking as a way of making passive income. Most traditional institutions offer low rates (about 2% annually) on savings compared to crypto staking, whereby most projects offer over 10% annually. As staking grows, developers are creating better solutions to ensure staking actually provides value to the investor – apart from the monetary benefits.
Digital identity is one area that staking is aiming to make a change. Projects are incentivizing investors and users to manage and store valid digital identity credentials in exchange for a reward. Leading the charge is SelfKey, an Ethereum based platform that ensures the security and safety of digital credentials on a decentralized platform by rewarding users who stake with LOCK tokens.
Bringing Staking and Digital Identity Together
The world is rapidly moving into the digital metaverse, which means digital identity becomes a crucial building block to the ecosystem. Individuals, corporations, and organizations need to build digital identity systems that view, manage, and process identity based transactions effectively and securely to ensure cases of identity fraud and scams are minimized.
As such, developers are turning to blockchain-based technologies to build a future that empowers individuals and corporations to truly own, control, and manage their identity data. The blockchain digital identity has witnessed massive growth in the past three years, growing at an annual rate of 84.5%. According to a Reuters report, the blockchain identity management market is expected to grow to a $2 Billion industry by 2023.
One solution showing promise in blockchain identity management is SelfKey, an Ethereum based startup that develops secure, decentralized, and effective ways to store users’ digital identities. The platform leverages the power of staking to incentivize users to manage, verify and authenticate identity data in order to keep the system safe and secure from counterfeit documents and fraud.
SelfKey incentivizes the participants on the platform to check the validity of a document by combining the power of staking with blockchain-based digital management solutions. This ensures there is trust and transparency across the system while keeping the system fully decentralized. Notwithstanding, staking also offers users a potential income stream and voting powers on the governance of the system.
Despite the rapid adoption of staking mechanisms, institutions remain pessimistic of the opportunities that arise from staking tokens. Comparatively, staking crypto generates a higher yield than the best of banks in the world – with even the least generous staking coins generating a yield of more than 5%, which is far better than the 1.25% offered by banks
All the same, cryptocurrencies are also notoriously volatile. Depending on the market conditions, staking could lead to an investor losing their money if the price of the token falls greatly. To this regard, SelfKey introduced a mechanism that allows staking participants to add value to the system while increasing the value of the token.
SelfKey users are required to stake their KEY tokens to authenticate and validate their digital identity. The staked tokens provides a buffer that could be forfeited if the digital identity of the user is rejected by the community. This incentivizes users to provide real documents and mobilizes the community to be vigilant in checking for fake digital identities on the system as the forfeited tokens are shared with the SelfKey community.
The Digital Age of Verification
Until recently, SelfKey was based on a single token model ecosystem with the KEY token as the main gas fuel for the digital identity solution platform. The platform employed a tokenized model where users pay for products and services in the marketplace only with KEY. However, the platform recently launched new governance and work token (LOCK), along with a unique Proof-Of-Individuality based system that allows users to stake KEY tokens against their identity and earn work tokens in LOCK.
Additionally, users with special credentials are also eligible for tradable, custom-minted NFTs called Living Avatar NFTs. By leveraging the staking model, SelfKey ensures users’ identity is both valid and reliable.
So how exactly does a network participant earn LOCK tokens?
It’s been demonstrated time and again that a non-zero cost of entry can help deter bad actors. SelfKey users need to place an initial stake of KEY tokens to authenticate and verify their identity. This aims to prevent Sybil attacks on the system as users that spam or create fake credentials could lose their staked KEY tokens.
The LOCK TOKEN is a governance token. This means that holders of LOCK will have voting rights for the development of the project.#SelfKey #POI $LOCK $KEY pic.twitter.com/o7atquFG6A
— SelfKey (@SelfKey) November 10, 2021
Users that stake KEY tokens and have their digital identity verified are rewarded in LOCK – further incentivizing users to provide real documents. The work tokens on staking are meant to generate over time a consistently growing amount so that the users are incentivized to hold on to their stake.
Future of Decentralized Digital Identity Management
As seen above, staking plays an important role in decentralized digital identity management systems. As more people leave traditional finance in favour of crypto, staking is expected to offer even more value for investors. Blockchain technology is here to stay and it is expected that large corporations and institutions will soon join the staking bandwagon, given the massive strides the nascent technology is making in ensuring digital identities remain safe and secure.
With projects such as SelfKey, individuals and organizations will be able to earn as they protect their digital identities. The future outlook is likely to see the merging of traditional finance projects with staking platforms in one, secure platform truly owned by users.