Digital Privacy and Security are essential for Blockchain Mass Adoption.
Without specialized infrastructure for privacy and security, DeFi mass adoption is impossible.
Blockchain technology became one of the most sought-afterfinancial services that soon became the foundation for the numerous innovations in the past year.
DeFi came with the promise to offer more financial privacy and independence to its users and investors, deviating from the traditional economic systems. DeFi quickly attracted the attention of the larger share of the market, thus giving rise to the era of decentralization. Soon we started seeing more and more protocols, DApps, and DEXes launching in the industry every day and more trades, stakes, yields, and much more financial services.
DeFi multiplied and witnessed remarkable growth in just a few months. Anybody could participate in this new financial service with just a wallet address without the hassle of submitting their details. All their transactions are recorded via their wallet address as immutable and transparent blocks to other users. Users could practice financial privacy and decentralization. Hence in 2020, DeFi took the financial world by storm.
In 2021, DeFi saw its peak, with a TVL of around 180 Billion. With this success, DeFi was attracting all kinds of attention, even those of criminals. Numerous users and investors lost out through fraud, scams, and money laundering in 2022. Between January to July 2022, the amount lost over crypto hacks surpassed 2 Billion USD. These risks are a significant setback for DeFi, raising our biggest concern — user security in DeFi.
User safety in DeFi
As problems in DeFi started to rise, several projects started incorporating traditional methods to ensure user safety and security. Unfortunately, existing verification processes, like the ones used by web2 financial systems, are not appropriate for a decentralized infrastructure. DeFi would no longer offer privacy and decentralization like it promised, becoming similar to the current financial system we are living in today.
Demand for DeFi would fall, resulting in no mass adoption. But we know today that this is not the case. Several DeFi Protocols are currently working to find ways to provide consumer protection while preserving their privacy and the decentralized nature of the transaction.
DeFi experts, engineers, entrepreneurs, and a few supporting government bodies have acknowledged its difference from the traditional infrastructure and stated that DeFi needs regulation. What’s required is Decentralized Compliance.
Decentralized Compliance is a set of regulations tailored for the users of DeFi that respects decentralization and privacy while ensuring user security. It is not the same as what the traditional financial system requires so users can feel safe and remain anonymous.
Decentralized Compliance for safety and privacy
It is encouraging that many projects are working towards regulating privacy and security in DeFi. With such motivated growth, we can accelerate the adoption of DeFi.
DeFi protocols are now implementing specialized KYC and AML processes through decentralized identity compliance. Projects use cutting-edge technologies and accredited legal support to ensure that all participants of the blockchain or platform are safe and comply with the regulations in their jurisdiction.
Decentralized Compliance can help the benefits and advantages of DeFi surface back or make it even better with DeFi 2.0. We can only tell with time. But so far, this looks like a promising step that will unlock the full potential of this new exciting space.
With privacy and security, users can again go back to practicing DeFi for the fundamental reasons it was introduced, financial privacy and independence.
