DIDs: Decentralized Identifiers

Merkle Seeds
3 min readAug 17, 2021

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When it comes to cryptocurrency, privacy and verification are everything. Blockchain technology was created specifically to solve security issues that have been present for a long time in the financial industry. The blockchain logs data and monitors that data using a network of nodes that verify each transaction. This allows each data set to be uncompromisable and unchangeable. Before blockchain, financial institutions ran into problems like double-spending and how to accurately verify someone’s identity. Identity verification has been a consistent issue in blockchain as well while companies explore how to gather personal information without a central authority. This problem has been solved in part by a process known as KYC. However, that’s not the only way to help with verification anymore. In particular, with crypto companies like Cobalt Lend that are using DIDs (decentralized identifiers) to facilitate the verification process so their customers can get loans. Let’s take a look at what DIDs are and how they function and then we’ll discuss how Cobalt Lend is utilizing DIDs for loans.

DIDs or decentralized identifiers are just specific pieces of identification information that can be obtained in order to verify someone is who they say they are. With DIDs, whatever company is utilizing them, can set out specific parameters regarding what information they want to get from customers in order to verify those identities. This information can be anything from email and telephone numbers to things like driver’s license numbers. DIDs are set up by the companies that use them so they’re the ones that determine which information they collect. Once a company has decided what data they want to use, it’s up to the backend developers to put that into motion using a specific code outline.

Cobalt Lend is utilizing DIDs to help people get loans. I’ve been fortunate enough to sit in on backend meetings where the developers discuss how to best serve their community. When they arrived at the issue of verification, DIDs quickly became their way to get to a workable solution. Let’s say you want to take out a loan with Cobalt. First, you would get onto the platform and submit a request and once you’re approved for a loan, that’s where DIDs come in. Cobalt will ask for a copy of your driver’s license to help verify you. They look at other financial factors but we can discuss those at a later date. For now it’s important to know that Cobalt does not have a central database. This is to protect the user so that no personal information is being stored in a central location. Instead, they store a hashed version of the DLN on the blockchain to be able to reference that information later and they use that information in order to make sure each DLN is only connected to one wallet. The hashed version of that DLN can only be decrypted by the Cobalt team and their Oracle.

DIDs have become a very important part of the crypto space and we’ll be seeing more projects using them in the future. DIDs present a way for crypto projects to be able to verify lots of data without using a central figure to do so. DIDs ultimately offer a trust system between people and crypto companies. This is forever the theme of cryptocurrency. There are currently other crypto projects that utilize DIDs but Cobalt is a wonderful insight into how DIDs work in order to be able to process loans, verify the customers, and establish security and trust for not just the users but for the company itself. Cobalt among lots of other projects have turned to DIDs because it stays in line with the core message of blockchain technology which is security and verification.

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Merkle Seeds
Merkle Seeds

Written by Merkle Seeds

Graduated from a university in Indiana- recently moved to California to pursue career goals. I’ve been studying crypto markets since 2015.