Given the pace of today’s digital world, decentralized digital identity is a revolutionary new method of identity that supersedes current methods of identity management. One of the forefronts of these innovations is the Ethereum blockchain platform that powers many of these solutions. But it’s its own cryptocurrency, Ethereum (ETH)’s price has a big part to play in enabling scaling or adopting digital identity solutions that are built off of its network.
For those seeking more information on Ethereum’s market performance, Ethereum Price offers an in-depth view of its current price, trends, and price history. Not only traders but also blockchain projects focusing on the decentralized identity system need to look at Ethereum’s price – these projects directly depend on Ethereum’s price as their success or failure is directly influenced by Ethereum’s price.
Learning about Digital Identity on Ethereum
Decentralized digital identity solutions are trying to give users control over their personal information by utilizing Blockchain technology. Solutions that are based on traditional systems often leave sensitive data stored on centralized servers vulnerable to breach, while in decentralized identity frameworks, ownership and all that needs to be shared are cryptographically proven.
These projects are born on Ethereum as the leading smart contract blockchain. The Ethereum network provides protocols like uPort, SelfKey, and Sovrin with a way to offer secure, verifiable, and user-controlled digital identities. However, the expense of working with these solutions tends to depend upon the Ethereum price as it cuts the transaction expenses (gas) and, therefore, the development budget.
Ethereum’s price does impact the solutions in one of the most immediate ways: transaction cost or gas fees. These are fees that are paid in Ethereum (ETH) to miners (or validators in Ethereum’s proof of stake system) in order to process transactions on the network. Gas fees also go up as Ethereum’s price goes up — thereby making it costlier for users to interact with blockchain-based identity systems.
For instance:
High Costs for Verification: The greater Ethereum’s price, the more expensive it becomes to verify an identity document on blockchain (simply because verification of that identity document takes place on blockchain), and thus the fewer people from developing regions who can access it.
Scalability Challenges: This higher fee can also discourage wide scale adoption, as organisations using decentralized identity solutions will also be less inclined to scale their usage—paying higher prices—when at industry standards.
On the other hand, when Ethereum or Dapp’s price becomes stable or falls, transaction costs become low allowing for more users and businesses to interact with such systems.
Funding and Development of Identity Solutions
The price of Ethereum also drives the funding of projects. Many decentralized identity initiatives use ETH to fund via token sales or grants. A higher Ethereum price means more capital to deploy in these projects, a reality that can push innovation forward and help developers do cooler things on their platforms.
This, however, is true too. The price of Ethereum dropping could take a large chunk of value out of those reserves, placing budget constraints on current code development and marketing efforts. Startups and long-term planning are hindered by this volatility, creating uncertainty.
Using Adoption Barriers in Emerging Markets
In emerging markets where traditional identification systems provide little or no benefits, digital identity solutions can completely change lives. But that’s where Ethereum’s price volatility can be a problem for adoption in these regions.
For example:
Affordability: Blockchain technology promises to be inclusive, especially at high ETH prices, it becomes even more expensive for individuals from lower income areas to access identity solutions.
Usability: Due to the fact that all systems targeting emerging markets are designed to minimize on-chain interactions, relying on Ethereum’s network can be challenging.
Potential Solutions to Mitigate Impact
Several initiatives are being developed to address the challenges posed by Ethereum’s price on digital identity solutions:
Layer-2 Scaling Solutions: Both Polygon and Arbitrum cut transaction costs by allowing transactions to be processed off-chain but remaining secure and decentralized through their reliance on Ethereum. Identity systems are made more affordable by these solutions.
Stable Transaction Costs: Some projects also try stable transaction fee models, pegging costs to fiat currencies, removing ETH price volatility.
Cross-Chain Integration: In order to diversify their infrastructure and reduce reliance on the cost of Ethereum’s fees, developers will integrate with other blockchains that offer lower fees.
Education and Subsidies: Training users on using gas efficient practices and providing subsidies to low income users can also drive adoption given volatile ETH prices.
The Path Forward
Although Ethereum’s price volatility presents challenges, the value of blockchain-based digital identity systems is huge. These solutions allow people to take control of their personal data, reduce fraud risk, and protect privacy on the journey towards secure and people-centric identity management as driven across the globe.
However, the transaction costs associated with using Ethereum are expected to decrease as Ethereum evolves — since sharding and proof-of-stake are not too far away—making Ethereum more accessible for identity solutions. The price of Ethereum will also have a limited impact on these systems as the growth of Layer-2 technologies and interoperability with other blockchains aid in reducing the need for ETH.
Ethereum’s price helps dictate the landscape of decentralized digital identity solutions. High prices could help drive innovation and funding for innovation but they inherently also drive up transaction costs and make it inaccessible for some users in emerging markets. Thankfully, the blockchain community can overcome these obstacles, using scaling solutions and ecosystem collaboration, unlocking the potential of decentralized digital identity.
With the technology maturing, Ethereum will most likely remain a central asset in pushing through the change in identity frameworks, and the price of Ethereum will continue to impact the adoption and development of its ecosystem.
