The Pitfalls of Identity-Centric Systems

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Some reputation systems in Web3 lean heavily on identity verification. The idea is simple: if you can prove you're a real person with a real-world identity, you're more trustworthy. While this might sound like a logical approach, in practice it introduces a host of problems, especially in a decentralized, privacy-first ecosystem.

Privacy Tradeoffs

Verifying your identity usually means submitting personal documents like a passport, driver's license, or government-issued ID. That’s standard in the Web2 world, but it’s deeply uncomfortable for many Web3 users who value privacy and self-sovereignty.

Once your personal information is out there, you can't take it back. And trusting a third-party platform with that data goes directly against the principles of user control and decentralization.

Geographic and Bureaucratic Bias

Even if you're willing to give up your privacy, identity-centric systems don’t work equally for everyone. Many of them are built around documents that are only recognized in certain countries or regions. That means users from underrepresented or underbanked areas often get left behind, even if their documents are 100% legitimate in their local context.

This creates a system where your reputation is tied more to where you're from than how you behave, which is the opposite of fair.

Expensive and Slow to Scale

Verifying identity isn't cheap. Many platforms rely on third-party KYC (Know Your Customer) providers that charge per verification. That might be manageable at a small scale, but it becomes expensive quickly as your user base grows.

Plus, verification often requires manual review, which adds friction, delays onboarding, and makes it harder to scale globally.

Behavior > Identity

While identity can be one signal of trust, it shouldn’t be the only one. In a decentralized system, your behavior, how you interact, what you contribute, how you manage risk, should matter more than your paperwork.

Web3 needs systems that recognize the complexity and nuance of reputation without forcing users to give up their privacy, freedom, or time.