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There is still a lot of unexplored in decentralized finance (DeFi) today. With so many competing factions, each with their own claims and goals, there is no clear rule of law.
As a result, some users had a negative experience after stepping into the ecosystem for the first time. User confidence is undermined when they hear about scams, ripping the rug, or when algorithmic processes fail due to unfavorable market conditions. Despite the best efforts of those working on DeFi projects, many users still find the technology intimidating and dangerous.
Many people are still wary of the cryptocurrency world because of its risky services and unregulated atmosphere. The most important question right now is how and when people other than Degens will be able to fully embrace her DeFi.
DeFi’s underlying technology is also key to avoiding the problem at hand. Decentralized Identity (DID) is the answer. By leveraging blockchain, smart contracts, and non-fungible tokens (NFTs), DID can provide legislators with trusted data while protecting user independence and anonymity.
Cryptographic infrastructure makes this possible, and NFTs in particular are essential to making this happen. In their role as assets, NFTs are verifiably distinct from all other commodities and have a unique history that can contain any kind of information. No one can forge or alter her NFT due to the underlying decentralized protocol.
As expected, a lot more is needed to fully realize the digital persona. Additionally, there must be transparency and clarity as to who owns which DIDs. For this purpose, an individual’s DID can be associated with the physical identification process.
This can be accomplished in a variety of ways, including using biometric data, real-world papers, or other independently verifiable confirmations. Combining all these data with NFTs developed a profile that cannot be forged.
Privacy activists may reject this concept on the grounds that it is too harsh and inclusive. After all, doesn’t the exact explanation that personal data is forever stored on the Bitcoin ledger sound particularly private? The next benefit of DID goes hand-in-hand with the use of Zero Knowledge Proof (ZKP) innovations. and is demonstrated in this context.
ZKP technology allows a third party not involved in the verification process to verify information once and then use that information to verify someone’s credentials.
This allows individuals to indicate their access, records, or background without necessarily disclosing their name or other personally identifiable information to the person conducting the verification.
In this paradigm, individuals have complete control over their information and empower verifiers as to what and when they can view it.
The information contained in identities no longer has to be freely available to businesses and governments whenever they need it.
These objectives not only contribute to the protection of individual rights, but also lead to various potential applications in the real world.
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This method could make the DeFi revolution accessible to everyone, from first-time investors to multinational conglomerates. DIDs can be made to always comply with the laws of a particular jurisdiction, thus satisfying authorities and preventing violations.
As a result, financial and commercial transactions of all kinds could be conducted more efficiently and fraud reduced accordingly.
The best part is that ordinary people may be able to control their own data and protect themselves from harm.
What needs to be recognized is the fact that this is not just an interesting concept. Rather, it is already a reality. Decentralized mechanisms have been created to accommodate just such types of identities, and people are already using them in several businesses.
These IDs are becoming more and more common. Soon, more businesses will start using comparable solutions for consumers, ultimately making it safer and quieter for everyone.
While it is true that regulatory action can play a role in helping risk-averse investors jump into this new space, it is also true that regulatory action alone is not enough.
This is because we need to balance both freedom and responsibility. Decentralized identity provides what is needed today and will continue to do so for some time into the future of DeFi, regardless of where this fascinating new business takes us.
Bringing this discussion back to DeFi, it is becoming clear how DID can be used to introduce transparency and trust into this space without compromising decentralization or privacy.
Customers and service providers can take advantage of these profiles. This creates a recognizable entity on the decentralized platform without necessarily revealing the consumer’s identity.
For example, certain features or dApps may require the use of properly verified DIDs in order to access them. Still, you may not need the services required to verify the owner’s identity.
DeFi services themselves may have their own DIDs that operate in a manner similar to the above. These DIDs serve as immediate and irreversible proof of history and reputation.
When such a system is put in place, it can help deter harmful behavior by having important real-world consequences for those who participate in it. All of this can be done without the owner having intrusive oversight or full knowledge.
