If you take a broader look at the DeFi ecosystem, you can see that decentralized finance projects are working and developing in an average of twelve directions. An attempt to bring almost everything that concerns the traditional financial system to a decentralized form also means the desire to move as quickly as possible to new types of interaction with financial instruments and the decentralization of the processes of these interactions.
Blockchain-based identification systems and decentralized finance protocols are designed to provide access to financial instruments to users with no financial track record or access to traditional financial instruments. In today’s post, we’ll talk about the DeFi sector related to identity, KYC procedures, and the ability to retain control over the data you provide..
In order to identify ourselves online, we need to provide information about ourselves to prove that we are who we say we are. The identification procedure is necessary, for example, to participate in an ICO or to create your own tokenized assets. When you send coins from your wallet, you identify yourself with the keys as the owner of these funds. By logging into your account on the exchange or service, you identify yourself as the owner of this account using a password.
Identification of users in the financial world is carried out through the KYC procedure – “Know Your Customer”, designed to track counterparties and their transactions to combat money laundering, fraud, and improve the security of financial transactions.
When going through the KYC procedure, users transfer part of their personal information to a third party, after which they no longer have the ability to control their confidential data.
On the other hand, refusal to provide personal data deprives the user of the opportunity to use services or services that require personal identification procedures. Data provided to centralized authorities cannot be secure, even in companies that provide a high level of security.
Personal data, such as: mail, phone number, passport data, residence address, wallet address, amount of funds, biometric data, passwords, etc., are valuable information in illegal markets. Gaining access to such information can lead to fraudulent activities, theft of funds, accounts and other illegal activities. Therefore, keeping your confidential data under control is one of the most important areas of development at the moment..
Everything in the world is in the process of digital transformation and integration, and the emergence of decentralized identification is a response to changing realities. Back in 2017, Microsoft teamed up with Accenture and Avanade to develop a blockchain-based database system for sharing the same data. And in 2018, Microsoft introduced DID, a decentralized identification system called ION that runs on the Bitcoin blockchain..
Decentralized Identity (DID) is a set of characteristics that uniquely identifies objects, while the DID of an individual user remains under the control of only that user. The idea behind decentralized authentication is to encrypt user information using keys. This approach makes it difficult for outsiders to access personal information. The DID owner retains control over the data and independently decides what information needs to be provided.
Civic is an Ethereum-based decentralized identity ecosystem that provides the ability to verify a user’s identity upon request. Using the Civic platform, users can create their own digital identity and store personal information about it on the device. This opportunity is achieved due to blockchain technology, which makes this approach safe and convenient..
The Civic platform provides the opportunity to pass KYC once, with the further provision of the necessary data on other platforms. Any network participant can become a client by entering their data into the blockchain using the Secure Identity application. Identity verification is carried out by validators who provide data to service providers for verifying users, receiving a reward for this in CVC tokens. Smart contracts are used to control financial transactions and attestation.
The main idea behind Civic is to create a single digital identity for each user with the ability to access various services, sites, services and organizations. The positive side of such a solution is complete control over the data provided by the user. The data is not stored on the blockchain; instead, links with access to attestations are stored in the distributed ledger. This means that the identifier registered on the network is proof of its authenticity..
3Box is a new generation decentralized user data storage system. It allows developers to perform various operations to identify users and accounts, such as obtaining a user ID (DID), associating new addresses with DIDs, and adding new authentication methods..
Each 3Box account has a unique DID called a 3ID allowing users to manage their data and information on decentralized networks. To create or restore a 3Box account, users are authenticated by signing the message with their key pair. If applications or services want to interact with a user account in any other way other than reading publicly available data, such as writing or deleting data, they will need to request that the user sign a consent message with their trusted keys, as only the keys of the account owner can manage decentralized identity.
With its decentralized structure, 3Box enables developers to eliminate much of the responsibility associated with ensuring the security and protection of user data. The data is stored by users, which gives them more control over their sensitive data, as well as over its transmission and use in other applications. The ability to store data for users allows them to easily use this data in other applications, services or networks without the need to create new data.
Blockpass Identity App, through which users can create and store digital IDs, allows users to create digital IDs with connectivity to banks, exchanges, trading platforms and other regulated services.
Verification of documents is carried out by third parties, but only on condition that you provide them. Using the services of a seller who requires confirmation of your identity, you decide for yourself whether to provide the seller with your data or refuse his services.
Developers are also developing Know Your Device (KYD) and Know Your Object (KYO) protocols for identity verification on the Internet of Things, and an autonomous identity protocol for the Internet of Everything (IoE)..
Bloom is a blockchain-based secure identity and credit rating solution. The protocol has three main components:
- BloomID (Identity Attestation), which provides a global secure identity, allowing lenders to offer matching loans worldwide.
- BloomIQ (Credit Registry), which is a reporting and tracking system for current and past debt obligations linked to a user’s BloomID.
- BloomScore, which is a measure of consumer creditworthiness. This decentralized valuation is similar to valuation borrower rating systems FICO or VantageScore.
Bloom allows users to create a loan portfolio that is available anywhere in the world and also provides a decentralized approach to building a blockchain-based lending industry with increased security and convenience..
The following projects are also involved in the construction of systems and protocols for decentralized identification:
Colendi, develops methods for assessing creditworthiness and microcredit in the financial sector, creating a system on the Ethereum blockchain with its own ERC-20 token
- Hydro project that improves application security by providing simple and flexible identity management. Includes an authentication protocol for data protection, a dApp store, a token, a set of smart contracts and a platform for creating payment solutions tied to the user’s identity.
- Selfkey project based on Ethereum and ERC-20 tokens for blockchain and SSID-based identity management, allowing users to own, manage and dispose of their data as they please.
Decentralized identification provides the ability to use a single digital identifier at various sites and services, without the need to re-enter data. The blockchain guarantees the security and immutability of this data, and users have full control over their personal information. With the rise in popularity of DeFi and the pace of digitalization in society, the demand for identity solutions will only grow..