Biometric Identity Management in Decentralized Finance

Biometric Identity Management in Decentralized Finance

(By Eugene Nnamdi: Humanode Writers Pool)


In the fast-paced world of decentralized finance (DeFi), where the promise of financial inclusion and diversity meets the challenges of security and trust, the quest for robust identity management solutions has never been more critical. While the concept of decentralized finance may seem cutting-edge, it also harbors inherent vulnerabilities. Due to its nature, DeFi platforms are vulnerable to identity attacks where malicious actors create multiple fake identities to manipulate the system. 

Enter Biometric Identity Management - a cutting-edge approach that harnesses the power of biometric data to authenticate and validate digital identities on-chain. By utilizing distinctive physiological characteristics such as fingerprints, facial features or iris patterns, biometric verification provides top-tier identity security in the blockchain ecosystem. 

In this article, we will dive into biometric identity management in decentralized finance, its mechanisms, exploring the benefits and limitations of blockchain-based biometric identity management systems (BBIMs). 

Understanding Biometric Identity Management in Decentralized Finance 

Biometric Identity

Biometric Identity refers to the unique physiological characteristics of an individual that can be used to verify and authenticate their identity or personhood. It is unique and distinct to each individual and difficult to replicate, making it very valuable for identity verification purposes. It encompasses a wide range of traits including fingerprints, facial features, iris patterns, voice patterns. 

In the context of identity management systems, biometrics serves as a more secure and reliable means of authentication as it replaces traditional methods such as passwords or PINs which are likely to be bypassed in many cases. 

Decentralized Finance, also referred to as DeFi is a growing ecosystem of financial applications and services built on blockchain technology. DeFi empowers individuals by eliminating traditional financial systems and enabling peer-to-peer transactions.

This is made possible by the usage of decentralized applications (dApps) which are designed to provide an interface for users to transact and perform certain actions like staking, lending, borrowing and providing liquidity. The key characteristics of DeFi includes;

  • Decentralization 
  • Interoperability
  • Open Access 
  • Transparency

Examples of DeFi applications and services include decentralized exchanges (DEXes), lending and borrowing platforms, automated market makers (AMMs), liquidity protocols, staking and re-staking platforms, yield farming. 

Mechanisms for Biometric Identity Management in Decentralized Finance

In decentralized finance (DeFi), biometric identity management systems can be implemented using various mechanisms to ensure secure and reliable authentication of users.

Blockchain-based Biometric Identity Management Systems (BBIMs) are systems that are designed to securely capture, store and authenticate an individual’s biometric traits for identity verification and management within the blockchain ecosystem. 

Some mechanisms for biometric identity management in DeFi includes: 

Biometric Enrollment and Authentication

 A DeFi protocol can utilize or integrate a biometric identity manager such as Humanode’s Biomapper which is an on-chain private facial recognition tool that ensures that a person is verified with only one Ethereum-compatible address on the platform. 

Stage One: Biometric Enrollment 

  • Users agree to the terms and conditions, then proceed to register their biometrics with the platform as part of the onboarding process. 
  • The next step, also known as Face Scan or Liveness check is when the user captures his/her face with a camera and the biometric data is captured and sent to the Humanode’s CVM ( Confidential Virtual Machine) through an encrypted channel.  
  • After that step, the user is prompted to share the information (Humanode Identifier) with the Humanode Biomapper which stores the info as a hash also known as a Biotoken during the session. 

Stage Two: Biometric Authentication

  • In this process, the user is required to select an Ethereum address to link their Biotoken.  
  • This prompts a message which the user signs with their private key, this signed message is passed on to a Signing Server which confirms the address and Biotoken ownership and then returns an attestation signature that can be verified and submitted on-chain. 
  • After the process above is completed, the next stage is when the user is prompted to sign a transaction which is linked to the Biomapper contract and invokes a proveUniqueness function with the Biotoken and attestation signature which finally results in an on-chain permanent record of the user’s uniqueness.  

Decentralized Identifiers (DID)

Decentralized Identifiers are secured by cryptography, and DeFi platforms can leverage decentralized identifier (DID) standards, such as W3C's DID specification and verifiable credentials, to manage and authenticate users. A decentralized identifier (DID) serves as a pseudo-anonymous identifier for individuals, companies, objects, and more. Each DID is safeguarded by a private key, ensuring that only the owner of the private key can verify their ownership or control over their identity. Individuals have the flexibility to possess multiple DIDs, which mitigates the potential for comprehensive tracking across various aspects of their lives. 

Using the DID mechanism for Identity Management in DeFi, this mechanism can be stretched to include biometrics for verification. Integrating biometrics into decentralized identifiers (DIDs) is a gamechanger in securing digital identities as it goes a step further to add an additional layer of security, enhancing authentication as biometrics will be required for identity verification, reducing the risk of identity theft or fraud. 

Advantages of Biometric Identity Management Systems in DeFi 

  1. Enhanced Security: BBIMs offer a high level of security in decentralized finance by using unique biometric traits for identity verification. Biometric identifiers are difficult and nearly impossible to forge or steal, reducing the risk of unauthorized access and identity theft.
  2. Reduced Fraud: Biometric verification adds an extra layer of authentication, making it more challenging for malicious actors to impersonate legitimate users. This helps prevent fraudulent activities such as account takeovers and unauthorized transactions.
  3. Improved User Experience: Biometric authentication provides a seamless and convenient user experience, eliminating the need for users to remember passwords or carry physical tokens. Users can easily authenticate their identity using biometric traits such as fingerprints or facial recognition, enhancing usability and reducing friction.

Limitations or Challenges of BBIMs in DeFi

  1. Scalability Issues: Implementing BBIMs at scale can pose challenges, especially for DeFi protocols with a large user base. Managing and processing biometric data for millions of users can strain network resources and infrastructure, potentially leading to performance issues and delays.
  2. Regulatory Compliance: Biometric data is subject to strict regulatory requirements, including data protection laws such as GDPR and biometric privacy regulations. DeFi platforms must ensure compliance with these regulations to safeguard user privacy and avoid legal liabilities.
  3. Data Privacy and Consent: Collecting and storing biometric data raises privacy concerns, as it involves capturing sensitive personal information. DeFi platforms must obtain explicit consent from users before collecting biometric data and implement robust security measures to protect against data breaches and unauthorized access.
  4. Interoperability: Ensuring interoperability between different BBIMs and DeFi platforms can be challenging, as each platform may use different biometric recognition technologies and data formats. Standardization efforts are needed to facilitate seamless integration and interoperability across the DeFi ecosystem. 

BBIMs in DeFi: A Case Study

In this part, we will highlight an example of a situation where biometric verification is needed in decentralized finance and the crypto industry as a whole. 

We would be dissecting the concept of Sybil Attack which is a prominent issue faced by different DeFi projects and also DAO voting and on-chain Governance. 

Part One: Sybil Attack 

A Sybil attack is a type of malicious activity in which a single entity creates multiple fake identities or pseudonyms to gain control over a network, system, or community. These fake identities are used to deceive other participants into believing that the attacker has a larger presence or influence than they actually do.

In this context, a single user can create multiple identities or in the crypto case, wallets and accounts, then use it to interact or manipulate a DeFi protocol in order to achieve a clear goal. 

We have seen this issue with so many projects that intend to airdrop their protocol’s token to community and users, where some group of people take advantage of the permissionless nature of DeFi and create a bunch of wallets (mostly exceeding 50 or 100) to interact with the project in order to allocations across their different wallets. 

Below are two examples of instances where a project had to resort to different mechanisms to combat Sybil attacks or behaviour. 

  1. LayerZero Labs

  1. Nibiru X Humanode 

The most possible solution to this scenario is to make sure that all users or community members interacting with a protocol only identifies with one particular wallet address. This doesn’t imply that users can not have multiple, but in the case of receiving rewards in fairness to the community, all users must be tied to one wallet address. 

Now, this also begs the question “How do we make sure that a particular user is tied to one wallet address?” , and the answer is through Biometric Verification using a Blockchain-based Biometric Identification Management System (BBIMs). Every unique user (human) is mapped and tied together with one wallet or address which he/she can use to receive rewards or token allocation.  

Part Two: DAO Voting and On-chain Governance 

This paper by Paradigm Research dives deep into blockchain governance and its mechanisms. 

It is a great resource for gaining knowledge into how decentralized decisions are made, covering both the token economics (tokenomics) of a protocol and technical upgrades that are made possible by on-chain voting. 

We would only be summarizing the concept of governance in blockchains and how it can affect the community and voting results. 

Blockchain Governance is the process by which decisions are made and protocols are managed within a blockchain network. 

favorsDecentralized Autonomous Organization (DAO) voting is a specific form of blockchain governance where stakeholders participate in decision-making through voting mechanisms, typically using tokens to represent voting power. DAOs aim to distribute decision-making authority among a large number of participants, promoting inclusivity, transparency, and democratic processes within the blockchain ecosystem.

Now, the problem that lies in DAO voting is that it favorsbehavior those that have the largest amount as they use their voting power which is the amount of tokens that they have to cast their votes on-chain. 

The DAO might try to mitigate this by enforcing a “one wallet = one vote” rule which implies that no matter the amount of tokens you have in your wallet, it still represents one vote. For example, 1 MATIC = 1 VOTE

Problem solved right? Well no, herein lies another issue. This can result in a Sybil behavior, as one person can create multiple wallets in order to cast multiple votes using more than 100 - 200 wallets. 

How can we solve this problem? The answer is through Biometric Verification. Mapping an individual to a particular wallet address that can be whitelisted to vote during the process. This would surely mitigate the issues encountered during DAO voting. 

Future of Biometric Verification in DeFi 

The decentralized finance space is an exciting and fast-paced environment that is gaining a lot of traction even though it's still in its infancy and requires time for sustainable growth and practical innovation. 

2024 Q1 Crypto Industry Report by Coingecko showed reasonable returns for DeFi in Q1 as it saw a market capitalization climb from $90B to $122B coupled with an increase in Total Value Locked (TVL) from $53B to up to $93B according to DeFi Llama 

This year also saw a lot of airdrops from a lot of crypto projects (L2s, DeFi protocols, GaneFi, SocialFi, DEXes) to which some were heavily criticized due to its turnout and inability to properly address Sybil behavior which resulted in low community and user retention.

A twitter post by @hmalviya9 rightly shows this ⬇️

This goes a long way to show that the issue of user identity is a big problem in DeFi and this needs to be addressed and solved. The only right and proper solution to this pending issue is the use of BBIMs to authenticate users' identities through biometric verification.

Useful Resources