Notebook Labs raises $3.3M to build privacy-focused identity infrastructure for Web3

Notebook Labs, the developer of a privacy-focused identity solution for blockchain protocols, said Thursday that it has raised $3.3 million in funding to build to solve the challenge of allowing Web3 protocols to identify and trust users without compromising anonymity.

Bain Capital Crypto led the seed funding round, with participation from Y Combinator, Soma Capital, Abstract Ventures, Pioneer Fund, NFX and others. The company said that the funds would go to building up the development team and expanding the platform’s infrastructure.

Up until this point, mass adoption of decentralized finance and other Web3 applications has slowed because users must go through verification processes where they must disclose both crypto wallets and personally verifiable information to centralized institutions. This goes against the basic premise of decentralized blockchain technology, which is supposed to eschew centralized authorities, and may turn off many of these users.

Notebook’s platform uses zero-knowledge cryptography in order to permit identity verification, which allows users full control of their identity data and retain their own privacy. This also allows Web3 dapp providers to trust that users are who they say they are without needing to penetrate their anonymity. For example, a user could provide a cryptographic hash that proves that they are verified, but that proof is not connected to their wallet address.

“Until now, blockchain users have been required to identify themselves with wallet addresses, which has not only compromised their privacy but has also subjected the blockchains themselves to Sybil attacks,” said Solal Afota, co-founder of Notebook Labs. “This has led many people to oppose putting their sensitive data on-chain for the sake of decentralization and has subsequently constrained DeFi’s growth.”

A Sybil attack is when a single individual or group pretends to be a large group of fake individuals by abusing anonymity. This type of attack can be prevented by providing proof that a real person is behind every identity that interacts with a service. Cryptographic wallet addresses don’t necessarily prove that a real person is on the other end, just that a wallet is being used by something.

Decentralized finance, also known as DeFi, which eschews the idea of middlemen and central authorities such as banks, for financial transactions using blockchains for peer-to-peer transactions, relies heavily on trustworthy peers interacting directly. Since money is involved, it’s also an industry where scammers and bad actors exist, so DeFi application providers want to be able to trust their users.

“Notebook’s technology is designed to help significantly improve a number of applications, from enabling lending protocols to build credit scoring systems that offer lower-collateralized loans to allowing [decentralized organizations] to check the identity of their users in a privacy-preserving way,” said Nathaniel Masfen-Yan, co-founder of Notebook Labs.