DeFi revolution and the case for decentralized identity
- Introduction to decentralised identities, or DIDs and the non-fungible token (NFTs) space.
- Decentralised identity and use of zero-knowledge proof (ZKP) innovation.
- Other benefits, including protection for the regular user.
There is still a lot of “wild west” in decentralised finance (DeFi) today. There is no clear rule of law since there are so many competing factions, each with its own set of claims and goals.
As a result, some users have had unfavourable experiences after venturing into the ecosystem for the first time. Users’ faith is shaken when they hear accounts of scams and “rug pulls,” and when algorithmic processes fail due to unfavourable market conditions. In spite of the best efforts of the people working on DeFi projects, many users still find the technology intimidating and risky.
Many people are still wary of the cryptocurrency world due to the dangerous services and unregulated atmosphere. Individual and institutional investors alike are frightened of and confused by DeFi. The burning question now is how and when non-Degens will be able to fully embrace DeFi.
Ingress of decentralised IDs
DeFi’s foundational technology also happens to be the key to bypassing the problem at hand. Decentralised identities, or DIDs, are the answer. DIDs can provide reliable data to legislators by utilising blockchains, smart contracts, plus non-fungible tokens (NFTs), all while protecting users’ independence and anonymity.
The cryptographic infrastructure allows for this, and NFTs in particular, is vital to making this a reality. In its role as an asset, an NFT is verifiably distinct from all other commodities and comes with its own history, which can contain any kind of information. No one can forge or change an NFT because of the underpinning decentralised protocols.
As expected, more is required for a fully realised digital persona. In addition, there must be transparency and clarity regarding who owns which DIDs. To this end, a person’s DID can be connected to their physical identity verification processes.
This could be accomplished in a variety of methods, for as by using biometric data, real-world papers, or other confirmations that can be independently verified. A profile that cannot be faked has been developed by combining all these data in an NFT.
The usage authority
Privacy activists might reject the notion on the grounds that it is overly stringent and comprehensive. When all is said and done, an accurate account of a person’s data being stored on a bitcoin ledger for all of eternity does not sound particularly private, does it? The next advantage of DIDs comes into play in this context, in tandem with using zero-knowledge proof (ZKP) innovation.
Using ZKP technology, information can be validated once by a third party that is not involved in the verification process, and then it can be used to verify someone’s credentials.
As a consequence of this, an individual will be able to demonstrate their access, records, or background without necessarily disclosing their name or any other personally identifiable information to the person conducting the verification.
In this paradigm, individuals would have full control over their own information and would be able to provide rights to verifiers over what can be viewed and when it may be seen.
The information included on IDs would no longer have to be a free-for-all for companies and governments to exploit whenever they see fit.
These objectives not only contribute to the preservation of individual rights, but they also bring with them a variety of potential applications in the real world.
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The paragon of trust
This method may make the DeFi revolution accessible to everyone, from first-time investors to multinational conglomerates. A DID could be crafted in such a way that it is always compliant with the law in a particular jurisdiction, so satisfying the authorities and preventing any violations.
As a result, all types of financial and commercial transactions might be conducted more efficiently, with a corresponding decrease in fraud.
The best part is that regular people might be able to take charge of their data and safeguard themselves from harm.
What needs to be acknowledged is the fact that this is not merely an interesting concept; rather, it is already a reality. Decentralised mechanisms have been created to cater to exactly such types of IDs, and people are already being utilised in several businesses.
These IDs are becoming increasingly common. Soon, more companies will begin using comparable solutions for their consumers, which will ultimately result in increased safety and tranquillity for everyone.
Role of regulators
Although it is true that the acts of regulators will play a part in assisting risk-averse investors in taking the plunge into this new arena, it is also true that the actions of regulators alone will not be sufficient.
This is due to the fact that freedom and responsibility both need to be balanced. Decentralised Identification offers what is required now and will continue to offer for a significant amount of time into the future of DeFi, regardless of where this fascinating new business takes us.
Conclusion: Is the DeFi usage spectrum broadened?
Bringing this discussion back around to DeFi, it is becoming more apparent how DIDs might be used to introduce transparency and confidence into this sphere without compromising decentralisation or privacy.
Customers and service providers are both able to make use of these profiles, which creates knowable entities on decentralised platforms without necessarily revealing the identity of the consumer.
For instance, certain functionalities or dApps may require the use of DIDs that have been appropriately verified in order to gain access to them. Nevertheless, the necessary service might not be necessary in order to validate the identity of the holder.
The DeFi services themselves may have their very own DIDs, which operate in a manner analogous to that described above. These DIDs serve as an instant and irreversible history and evidence of repute.
When put into place, a system like this would serve to deter harmful actions by producing consequences that have real-world significance for people who take part in them. All of this might be carried out without the holder being subjected to intrusive surveillance or having their full knowledge.