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Identity, Privacy, and Decentralized Credit

Commons Currency solves the fundamental challenge of decentralized credit through a sophisticated identity layer that ties financial history to unique human identities while preserving privacy through zero-knowledge proofs.

The Fundamental Challenge

Traditional cryptocurrencies face a critical limitation for lending: users can create unlimited anonymous wallets with no linkage between them. A borrower could default on loans in one wallet, abandon it, and appear as a pristine new borrower with a fresh wallet address. Lenders have no way to assess true creditworthiness or financial history.

This forces crypto lending into two unsatisfactory models:

Commons Currency solves this through a sophisticated identity layer that ties financial history to unique human identities while preserving privacy through zero-knowledge proofs.

Identity Foundation: Proof of Personhood

The system requires that users establish a verified digital identity tied to their unique personhood. This can be accomplished through multiple approaches:

Biometric Proof of Personhood

Systems like Worldcoin's World ID use biometric verification (iris scanning via the Orb device) to create a cryptographic proof that a person is unique without storing the biometric data itself.

The key insight: you prove you're a unique human who hasn't registered before, but the system doesn't store or reveal who you are.

When a user verifies through World ID, they receive a cryptographic credential proving "this is a unique human, identity #X." This credential is bound to their digital wallet but reveals nothing about their real-world identity.

Government-Issued Identity Integration

Alternatively or complementarily, government-issued IDs can serve as the personhood anchor. Many countries are developing digital identity systems (Estonia's e-Residency, India's Aadhaar, EU's eIDAS).

A user could verify once with their government ID to establish their Commons identity, then transact privately without exposing their ID repeatedly.

The government ID verification process:

  1. User presents government ID to an authorized verifier (bank, government office, or trusted digital service)
  2. Verifier confirms identity and checks the user hasn't already registered
  3. System issues a verifiable credential to the user's wallet: "This wallet belongs to a verified unique citizen of Country X"
  4. The actual ID details are not stored on the blockchain—only the cryptographic proof of verification

Hybrid Approach

The governance assembly might endorse multiple proof-of-personhood methods to maximize global inclusion:

Critical rule: Each person can have only ONE verified identity on the network. This is enforced through the proof-of-personhood mechanism, whether biometric uniqueness or government ID uniqueness checks.

Credit History Accumulation

Once a user has a verified identity, all financial activity tied to that identity accumulates into a unified credit history, even if the user operates multiple wallets.

How It Works

Zero-Knowledge Creditworthiness Proofs

Now comes the powerful part: users can prove facts about their credit history without revealing the underlying details. This is where zero-knowledge proofs enable the breakthrough.

How a Loan Application Works

When Alice applies for an unsecured 5,000 CU loan from a DeFi lending pool:

  1. Alice presents a ZK proof: "I am a verified unique person who has taken at least 3 previous loans totaling more than 20,000 CU, all repaid on time with zero defaults in the past 2 years."
  2. The lending protocol verifies the proof cryptographically without learning:
    • Who Alice is in the real world
    • The exact number of loans (just that it's ≥3)
    • The exact amounts (just that total ≥20,000 CU)
    • Which lenders she borrowed from
    • What the loans were for
  3. The protocol sees only: "This identity meets our creditworthiness threshold" and approves the loan with appropriate terms (interest rate, duration).

Contrast this with traditional credit checks where the lender sees your full credit report (every loan, every purchase on credit, every late payment, your address, social security number, etc.).

Preventing Default and Restart

The identity binding prevents the classic crypto lending problem: If Alice defaults on the loan, that default becomes part of her identity's permanent history.

This creates real accountability without sacrificing privacy: you can't game the system by abandoning bad wallets, but your entire financial life isn't exposed to the world.

Selective Disclosure and Privacy Controls

Users maintain control over what they prove and to whom:

Building Credit from Zero

For the unbanked who have no credit history, the system enables bootstrapping:

This democratizes credit: someone in a developing country with no traditional bank account can build verifiable creditworthiness through on-chain behavior, then access global capital markets.

Technical Implementation

The identity and credit system uses several technical components:

Privacy Layers

The system implements privacy at multiple levels:

The Breakthrough

Result: A system where creditworthiness assessments work without over-collateralization, lenders have confidence in borrower history, but individual financial privacy is preserved and users maintain control over their data.

This solves the impossible trilemma of crypto lending:

For the first time, we can have true decentralized credit markets that serve the billions who need capital most, without sacrificing privacy or enabling fraud.

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