The identity service is definitely not necessary to play the game. It's meant to identify as the same player, both on different servers ("Hey, that's the same person I saw the other day on another server!") and to be able to re-join a server from a different device as the same player (keep your inventory, sync spawn points, that kind of things).
As
@Michael said, the backing service is currently in maintenance mode. I've created
issue #4104 on Github to track the UI/UX part of this problem. Fixing the backing service and making the login work again is another topic, though.