The National Internet Information Office of China has put forward a new test paper. The "Regulations on Promoting the Interoperability and Mutual Recognition of Distributed Digital Identity Applications (Draft for Public Comments)" was recently publicly released, soliciting opinions from the entire society. This means it is still in the policy brewing stage, and specific terms, details, and timelines have yet to be unveiled, but the direction has already been written in the title: on one hand, it aims to achieve "interoperability and mutual recognition," establish standards, and break down barriers of various digital identities; on the other hand, it aims to "promote innovative development" without imposing a uniform approach on new technologies. The document defines distributed digital identity as a new type of digital identity based on distributed technologies such as blockchain, which supports users' self-management of identity information. In the context of previous rounds of blockchain policies that only emphasized "chain" and "applications," this time, the regulatory focus has noticeably shifted down to the "identity layer," attempting to draw a feasible middle line between standardization of infrastructure and innovation in decentralized identity (DID). The following text will explore three dimensions of the potential impact of this draft for comments along this middle line: how the Web3 identity protocol might be reshaped, whether the compliance narrative of DeFi will be rewritten as a result, and how the boundaries of data cross-platform and even cross-border flow might be redrawn.
Regulatory Voice: Distributed Identity Written into National Rules Draft
If we regard the top-level documents surrounding blockchain over the past few years as a main thread, then the "Regulations on Promoting the Interoperability and Mutual Recognition of Distributed Digital Identity Applications (Draft for Public Comments)" issued by the National Internet Information Office of China is clearly not a sudden novelty but a natural extension of the existing framework into the "identity layer." As early as 2021, the "Guiding Opinions on Accelerating the Promotion of Blockchain Technology Applications and Industrial Development" set the tone for the development of blockchain technology and industry. Since then, relevant policies have continuously paved the way for infrastructure and application scenarios. Now, this draft focusing on distributed digital identity is seen as another link in the chain of standardization of infrastructure, indicating that regulation has not suddenly "discovered" DID, but is further pressing the focus of regulation from chains and applications down to the question of "who is on the chain."
From the currently available official summary, this document at least releases two directional signals: First, it explicitly mentions "promote innovative development," which means that regulation does not simply view distributed digital identity as a source of risk but hopes to leave room for experimentation within the boundaries of rules for digital identities based on blockchain and other distributed technologies, emphasizing user self-management; Second, it emphasizes "interoperability and mutual recognition applications," locking the goal on the cross-platform interoperability and mutual recognition of digital identities in various fields of the national economy and social development, making it not just a technical guideline but more like an "access language" for future interfaces of various digital identity systems. Equally important, at this stage, this remains a draft for public comments: the solicitation for opinions is publicly directed at society, the brief does not disclose complete terms or technical standards details, nor does it specify the deadline for comments or the formal implementation time. This means that before the formal articles and technical standards emerge, this draft is more like a starting signal rather than a conclusive end to a predetermined path.
From Account to Identity Sovereignty: What Distributed Digital Identity Needs to Solve
Following this "starting signal," a more straightforward question arises: why transition from a familiar account system to distributed digital identity? In the traditional internet, "identity" is dismantled into various accounts that are hosted by platforms, and identity proof is defined and maintained separately by each platform. The result is fragmented data, repeated authentication, and difficulties in mutual recognition. Users merely switch back and forth between countless forms and passwords, making it hard to truly "own" their digital identities. The definition given in this brief specifically defines distributed digital identity as "a new type of digital identity based on distributed technologies such as blockchain, which supports users' self-management of identity information." The core difference lies in that identity is no longer just a record in a platform’s database; rather, it can be held by users themselves and presented and authorized as "digital credentials" in different scenarios as needed.
This definition is closely linked to the official set goals—promoting digital identity to achieve cross-platform interoperability and mutual recognition in various fields of the national economy and social development. In other words, distributed digital identity has been placed within the map of national-level blockchain foundational capabilities: previous blockchain policies released since 2021 emphasized the chain itself and application scenarios more, while this time the focus of regulation has further sunk to the identity layer. Under such a framework, the decentralized identity (DID) track has been specifically named as a focus by the regulatory body, meaning that "identity sovereignty" and "controllability" are both elevated to the forefront. On one hand, individuals should have a higher degree of control over their digital identities; on the other hand, this new type of identity system must be integrated into regulatory and auditable infrastructure, reserving institutional and technical interfaces for future larger-scale applications.
DeFi and On-Chain Applications: The Identity Layer May Become a Compliance Gate
Once distributed digital identity is elevated to the national rules level and interconnected based on unified standards, it is no longer merely a “plugin” of a specific chain or protocol, but rather the fundamental threshold for compliant DeFi and on-chain finance. For Web3 identity protocols, this means that the same user can be "seen as the same person" in applications across different chains. On-chain contracts can technically confirm that the address corresponds to a certain type of certified digital identity, thus writing into the protocol logic "who can come in and with what permissions." The brief suggests viewing this draft for comments from the perspectives of "Web3 identity protocols, DeFi compliance," essentially reminding that once the identity layer is standardized, it provides a regulatory-acceptable compliance foundation for on-chain finance.
On top of this, the interoperability and mutual recognition of identities inherently create conditions for "compliance access control" and "whitelist participation": protocols can set stipulations that only addresses holding a certain type of compliant DID can access, or open different features based on different identity levels, bringing down the processes that previously relied on front-end risk control and centralized KYC to automatic verification of on-chain identity and smart contracts. However, the specific technical standards and compliance requirements of this draft for public comments have not been disclosed in the current available data. We do not know whether it will require a type of mandatory on-chain tagging, whether specific business forms will be restricted, nor do we have any market reactions or project party expressions to refer to, leaving it ambiguous whether the identity layer will become a rigid gate or a more flexible compliance interface.
Cross-Border Data and Local Protocols: Connecting Global DID or Forming a Separate System
Once identity is standardized on-chain, issues will no longer occur solely between domestic platforms. The draft for public comments proposes to promote cross-platform interoperability and mutual recognition of digital identities across various fields, and the brief separately lists "cross-border data flow" as a dimension that requires attention. This means that, in the future, the same distributed digital identity may simultaneously appear in domestic business systems and foreign business systems. At that point, which side's rules prevail, which fields can flow across borders, and which can only be "verified locally" will no longer be technical details that traditional interface layers can easily handle. More critically, the brief does not disclose how this regulation will align with existing personal information protection and data outbound regulatory rules. Whether identity data is seen as "remaining on-chain equals remaining domestic" or defined as cross-border based on actual usage scenarios creates a gap that makes it difficult for cross-border businesses to judge risk boundaries, while also reserving significant operational space for regulatory bodies.
From a global perspective, friction points will be more direct. Internationally, there are already decentralized identity practices based on blockchain and distributed technologies, such as the W3C-level DID standards, which emphasize verifiable credentials, portable identities, and interoperability among multiple parties. However, the brief does not clarify whether China will adopt any specific international standards, placing local distributed digital identity at a crossroads: either to align with the existing DID ecosystem as much as possible in terms of semantics and interfaces, allowing domestic identities to be "translated" into globally comprehensible formats; or to establish a protocol system that leans more towards local regulatory demands, with gateways or intermediary services mapping between domestic and foreign DIDs. The former's cost is concerns over safety and data sovereignty, while the latter's price is the friction and fragmentation of cross-border businesses. Distributed digital identity will long serve as a hub for the game between data security, privacy protection, and international compliance. Ultimately choosing which path will determine whether China’s DID seamlessly integrates with the global ecosystem or stands apart.
Regulation and Innovation Race: What to Look for Next in Distributed Digital Identity
The inclusion of distributed digital identity into the national-level rules draft itself is a strong signal: the regulatory perspective has expanded from "chains" and "applications" to "identities." Blockchain is no longer just a foundational technology or industry tool but is expected to play the role of the "identity layer infrastructure" in the national economy and social systems. For Web3 and the broader on-chain industry, this means that in the future, all protocol designs, account systems, and even business models centered around identity will be examined within the framework of national standardization. However, all of this currently remains in the public comment stage; the brief contains no information on any official release time or implementation date, nor does it disclose any details of the clauses. The boundaries of regulation remain flexible, and whether the technical route leans towards stronger control or greater autonomy is still uncertain. At least three observable points can be anticipated: First, when the formal document is released and how it aligns with existing blockchain policies since 2021 will determine its hierarchical position and strength within the entire policy system; Second, whether more detailed supporting standards and pilot applications will be simultaneously introduced to verify the feasible paths of distributed digital identity in cross-platform interoperability and mutual recognition; Third, how regulation ultimately approaches the decentralized identity track—whether it will detail rules along the analytical dimensions of "Web3 identity protocols, financial compliance, cross-border data flow" or adopt a more localized logic—will directly decide whether this round of regulatory and innovative race transforms DID into a scalable infrastructure or locks it within more closed and inward-looking application boundaries.
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