A non-technical overview of the Fragmynt Identity Protocol
The Fragmynt Identity Protocol is quite simple in its function. Because a blockchain is distributed (its infrastructure is spread out among its users) and pseudoanonymous (the anonymity that comes with a fake name), it is difficult to keep track of who is who. This isn't an issue in many cases, and can even be desirable, but there are a number of important markets that can't efficiently operate without a picture of the person participating. A very good example is the credit market (i.e. lending and borrowing). Although our identity protocol can be used very generally, it is always simplest to understand something with an example, and the credit market is an excellent example.
Credit refers to the value created when someone lends money to somebody else. Everybody reading this is likely very familiar with that concept. Although credit behaves like regular money (i.e. you can spend it just the same), it doesn't quite work the same in the background.
When you lend someone money, you do it with the proviso that they will pay you back, typically with a little more money on top called "interest". Before you lend someone money you typically make a judgement on their ability to repay you. For example, if you had a friend that had a history of not paying you back, or who blows his paycheck on the day he gets it, you might be reluctant to lend them money again when they ask.
The same thing, in a more rigorous process, happens at a bank or any other lending institution. These banks typically look at income records, past loans, your savings etc. before they will consider you for a loan. Before you take a loan, the bank will typically ask that you also deposit some collateral. Collateral is basically anything that has value that a bank or lender can sell if you aren't able to pay your loan back. They might also ask for a guarantor, which is a person that is legally reponsible for taking over the loan if you fail to pay.
As you might have picked up on, for credit to work you need to know some things about the person borrowing, and perhaps their relationships to other people. On a regular blockchain (the tech behind Fragmynt), there is no concept of identity. There are only addresses which can be created by anybody, completely anonymously. This poses an issue for issuing credit because we can't tell anything about the person who wants to borrow. Fortunately there are some things that we can do to fix it.
This section's title is a very fancy name for a particular way of recording aspects of someone's identity on a blockchain. We won't use the term often (it was borrowed from a video game), because a soul-bound tokens are essentially glorified, non-transferable (this is the important part) badges.
Want to know more about Soul Bound Tokens?
If you would like to learn more about soul bound tokens there are loads of resources online. Here is a link to a good one to start you off.
The basic idea is that these badges can be for anything. For example they could be for your age, your citizenship, your qualifications, and (crucially for this example) even your previous history of interactions with a financial system. The badges are sent from one wallet to another and once you receive one you can't get rid of it.
At a very high level, a blockchain is just a list of wallets and what is inside the wallets. Wallets can hold tokens. The Fragmynt Identity protocol allows each wallet on FEN to send other wallets these non-transferable tokens (badges). This might seem silly but it becomes very useful if we start to know things about some of the wallets in the system. For example, one wallet could be associated with the citizenship department of a country. This wallet could then issue a badge to the wallet of anybody that was a citizen of that country. Then we would know the citizenship of the person who owns a wallet, just by looking at that wallet's badges. The same could be said for any number of attributes.
For example, a credit score could be compiled from badges issues by the automatic programs running all the pieces of financial infrastructure on FEN. Then we could know something about a wallet's history and behaviour inside the financial system. This would allow us to ascertain the reputation of a particular wallet and decide whether we should give credit to it or not, even without knowing anything specific about the owner.
These badges could also be used for guarantoring. We could evaluate the reputation of a wallet based on the wallets it is connected to. For example, if a wallet with a very long and honest reputation, issued a badge to a newer wallet, we could be confident that this newer wallet can be trusted, even though it doesn't have a history associated with it.
As you can see, having this ability to associate wallets with one another is very powerful and lets us build pieces of infrastructure that we wouldn't otherwise be able to build. You might be thinking, "I can think of other ways of doing this that don't seem so convoluted". I think this idea can seem overly complex on first glance but it is actually a remarkably simple and efficient way of solving this problem without having to rely on a centralized entity.
Why yes there is, thanks for asking! This protocol is built deep into the foundation of FEN. This is important because the crucial piece you need for this to work is for everybody to agree what badge template should be used. For older chains this is not possible because you can't change a chain after it has been built so what you need is for a very spread out bunch of people to all agree together - not an easy task. Another admittedly boring but important advantage is that we were able to build it in a highly efficient manner also. Both the identity and market protocol are as much a part of FEN as your head is part of your body.