Voyage through the DeFi universe: Decentralized Identification


If you look at the DeFi ecosystem through a wider lens, you can see that decentralized finance projects are working and developing in roughly twelve directions. Attempting to shift to a decentralized form of almost everything related to the traditional financial system also means trying to move as quickly as possible to new types of interactions with financial instruments and decentralization of these interactions.

Blockchain-based identification systems and decentralized finance protocols are designed to provide access to financial instruments to users with no reputation for financial activities or access to traditional financial instruments. In today’s article, we will talk about the identification-related part of the DeFi sector, KYC procedures, and how to maintain control over the provided data.

Decentralized Identification

In order to identify ourselves online, we need to provide information about ourselves to prove that we are exactly who we say we are. The identification procedure is required, for example, to participate in an ICO or to create own tokenized assets. When you send coins from your wallet, you identify yourself with the keys as the owner of those funds. When you log in to your account on the exchange or service, you identify yourself as the owner of this account with a password.

Identification of users in the financial world is done through the procedure called KYC, or “Know Your Customer”, designed to track counterparties and their transactions to combat money laundering, fraud, as well as to improve the security of financial transactions. 

During the KYC procedure, users pass on some of their personal information to a third party. This means that they can no longer control their confidential data, and it could be stolen, sold, or used for fraud.

On the other hand, refusing to provide personal data deprives the user of the opportunity to use services that require identification. Data provided to centralized authorities is not 100% safe, even with the companies that provide a high level of security. 

Personal data such as PO Box, telephone number, ID, residence address, wallet address, amount of funds, biometric data, passwords, etc. – are extremely valuable on dark markets. Gaining access to such information can lead to fraudulent actions, theft of funds, accounts, and other illegal activities. Therefore, keeping your private 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, together with Accenture and Avanade have developed a system of blockchain-based databases for common access to the data, and in 2018, Microsoft introduced DID – a system of decentralized identification called ION, working on the Bitcoin blockchain.

Decentralized Identification (DID) – is a set of characteristics that unambiguously identify objects, and the DID of an individual user remains solely under his/her control. The idea of decentralized identification is to encrypt information about users with private keys. This approach makes access to personal information difficult for unauthorized persons. The owner of a DID retains control over the data and decides for himself what information to provide.


Civic is a decentralized Ethereum-based authentication ecosystem that provides the ability to verify the identity of a user on demand. Using the Civic platform, users can create their own digital identity and store personal information about it on the device.

Civic platform provides an opportunity to pass KYC once, with the further provision of necessary data on other platforms. Any member of the network can become a client by entering their data into the blockchain using the Secure Identity application. Identity verification is performed by validators who provide data to service providers to verify users, receiving a reward in CVC tokens. Smart contracts are used to control financial transactions and certification.

Civic’s main idea is to create a single digital certificate for each user, with the ability to access different services, sites, services, and organizations. The positive side of this solution is full control over the data provided by the user. The data is not stored on a blockchain; instead, the distributed ledger stores links to access the certificates. This means that the identifier registered on the network is proof of its authenticity. 


3Box is a next-generation decentralized user data storage system. It allows developers to perform various operations to identify users and accounts by the type of obtaining a user identifier (DID), linking new addresses to DID, and adding new authentication methods.

Each 3Box account has a unique DID, called 3ID, allowing users to manage their data and information in decentralized networks. To create or restore a 3Box account, users authenticate by signing a message with their key. Suppose applications or services want to interact with a user account in any other way than by reading publicly available data, such as writing or deleting data. In that case, they will need to request that the user signs the consent message with their validated keys since only the keys of the account owner can manage the decentralized identification.

3Box, with its decentralized structure, enables developers to eliminate much of the responsibility associated with the security and protection of user data. Data is stored by users, giving them more control over their sensitive data as well as transferring and interacting with other applications. The ability to store data allows users to easily take advantage of other applications, services, or networks without having to create new data.


The Blockpass application for identification, which enables the creation and storage of digital identities, allows users to create digital identities with the ability to connect to banks, exchanges, trading platforms, and other regulated services. 

Third parties verify documents. When using a merchant’s services who require proof of your identity, it is up to you to provide your data to the merchant or opt-out of the service.

Also, developers are creating Know Your Device (KYD) and Know Your Object (KYO) protocols for identity verification on the “Internet of Things,” and an offline identity verification protocol for “Internet of Everything” (IoE).


Bloom is a solution for creating secure identity and credit ratings based on blockchain technology. The protocol consists of three main components:

  1. BloomID (Identity Attestation), which provides global secure identification, allowing lenders to offer appropriate credit around the world.
  2. BloomIQ (Credit Registry) is a system for reporting and tracking current and past debt obligations linked to a user’s BloomID.
  3. BloomScore, which is a measure of consumer creditworthiness. This decentralized assessment is similar to that of FICO or VantageScore, the borrower rating system.

Bloom allows users to create a credit portfolio available anywhere in the world and provides a decentralized approach to building the credit industry on a blockchain with increased security and convenience.


There are more projects, building systems, and protocols for decentralized identification, such as:

  • Colendi, which is developing methods to assess creditworthiness and microcredit in the financial sector, creating a system on the Ethereum blockchain with its own ERC-20 token.
  • The Hydro project enhances application security by providing simple and flexible identity management. Includes authentication protocol for data protection, dApp store, a token, set of smart contracts, and a platform for creating payment solutions linked to the user’s identity.
  • Selfkey project based on Ethereum and ERC-20 tokens, for identity management, based on blockchain and SSID, allowing users to own, manage, and control their data at their own discretion.

Decentralized identification provides the ability to use a single digital identifier with different platforms and services without the need to re-enter data. Blockchain guarantees the security and integrity of this data, and users get full control over their personal information. With the growing popularity of DeFi and the pace of digitalization of society, the demand for identification solutions will only grow.


Disclaimer: The contents of this article are not intended to be financial advice and should not be treated as such. 3commas and its authors do not take any responsibility for your profits or losses after you read this article. The article has been presented to provide readers with general information. There is only personal experience described herein. The user must do their own independent research to make informed decisions regarding their crypto investments.


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