As the saying goes: not your keys not your wallet. This is the fundamental issue with the anonymity. You can prove you have access, but you cannot prove it belongs to you. The centralized/decentralized conversation often doesn't touch this aspect. When it comes to ownership, at some level, there needs to be a central power to enforce it as ownership is in itself a vague concept.

The path forward are contact wallets and dead man switches

Ah, so then possession becomes ten-tenths of the law. I'm not sure this is a system that we want. A system that allows for every day trading (buying something at a store) that requires a second piece of equipment to verify your identity that, if someone steals, there is no means of recourse. Sure, multiple wallets, something something, but this just sounds like a nightmare of record keeping where you offload a single point of failure to somewhere else (password manager to remember all your wallets).

You could store that second piece of equipment on your person, like an ultraviolet invisible ink qr code tattoo on your right hand or your forehead since no one can see it except under a black light.

This post is talking about what is essentially a signing setup. If your private key is stolen in such a setup, the person who steals the key becomes you.

Essentially yes :)

Yes but it also makes it a LOT less likely that your passphrase would be compromised because it is never sent to any service over the wire; with blockchain signatures, your passphrase never needs to leave your own machine. So the service providers you log into never have any opportunity to even see your passphrase; they only see your signatures which proves that you know the passphrase. You could use a different program for signing login messages so that you don't even need to insert your passphrase inside third party UIs. You'd use one trusted program of your choice to handle logins for all the different services; just copy paste the signature into the different services.

There are some stateful blockchains which allow changing the passphrase but of course there is no 'forgot my password' feature; a malicious actor who manages to steal your passphrase could potentially use it to change your passphrase and lock you out of your account but at least you don't have to live in doubt if you suspect that your passphrase was compromised.

The idea behind the blockchain auth approach is that you would only need one passphrase for all services but you would have to secure it carefully since losing it would cause you to be locked out of all services associated with that account.

If someone does steal your identity in this way, there's no way of getting it back. You can't appeal to any authority, because there's no authority to appeal to in a decentralised system. You literally have to start again and create a new identity.

So you're gambling bigger: less likely to have your identity stolen, but complete loss of everything to do with that identity, with no recourse, if it is stolen.

I'm not sure I like those odds.

It can't be much worse than relatives claiming you as dead so they can have your house, and then every government system denies you any service because you're "dead"