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Undoubtedly, getting access to financial instruments and means is essential to modern people, helping those in financial difficulty can improve their lives. The personal credit score is a key factor in accessing the financial system. However, according to World Bank statistics, an estimated 1.7 billion people in the world are unbanked, while over 44% of the current banked population is not eligible for credit which means 72% of the world population is defined as not credible and it is impossible to use the traditional financial system (Fiocco, 2019). The global population's demand for credit usage increases every year, but most parts of the world have no access to credit, especially the underdeveloped regions. Obviously, the traditional methods of evaluating personal credit scores show some disadvantages, as most of them are usually centralized, limited access, inadequate assessment, are expensive and have no transparency. Therefore, it is crucial to develop a solution that overcomes the drawbacks of the conventional financial system, has more efficiency in credit scoring, and makes finance accessible for everyone.
Recently, with the dramatic growth of blockchain technology, it has become a promising solution for a secure, decentralized, and transparent financial system (Xue, 2021). With the help of blockchain, many informal financial organizations can allow especially unbanked people to get access to micro-credit opportunities by facilitating personal accounts created by a digital identity system on the decentralized network. This protocol helps to overcome the limitations of the traditional credit scoring systems. Unbanked people can get a credit ranking and be able to borrow a small amount that banks do not consider. The distributed scoring system makes credit scores more transparent and reliable. Besides, users do not have to build a scoring system from scratch when moving to a new country with new unknown metrics, which is the downside of centralized credit scoring. Colendi (2019) looks at user data as a two-directed graph connecting lenders and borrowers, then applies machine learning algorithms to calculate credit ranking scores (Hassija et al., 2020).
Decentralized finance (Defi) uses cryptocurrency and blockchain technology to manage financial transactions. Defi aims to democratize finance by replacing legacy, centralized institutions with peer-to-peer relationships that can provide a full spectrum of financial services including banking, loans, mortgages, etc. Defi is an emerging phenomenon that is making its way into a wide variety of simple and complex financial transactions. It's powered by decentralized applications (dapps) and protocols that handle transactions in the two main cryptocurrencies, Bitcoin (BTC) and Ethereum (ETH). While Bitcoin is the more popular cryptocurrency, Ethereum is much more adaptable to a wider variety of uses, much of the app and protocol landscape uses Ethereum-based smartcontracts. The rapid development of Defi has led to the need to identify and rank entities on the blockchain network for customer protection, performing unsecured lending, and ensuring more trust in the transaction system (Zhou et al., 2021).
Continuing the first attempt at mathematical ranking research on Blockchain transactions (Thuat Do et al., 2019), in this study, we focus on how PageRank can be applied in the public blockchain space to build reliable, and verifiable social credit and reputation systems. The mathematics of PageRank are entirely general and apply to any graph or network in any domain. Thus, PageRank is now regularly used in social and information network analysis, link prediction, and recommendation. Inspired by the mechanism of Colendi protocols (Colendi, 2019), we consider entities on the Ethereum network (i.e. wallet addresses) as network nodes and transactions as edges. The PageRank algorithm is applied to calculate the ranking score. Thus, entities on the network are ranked based on the strength of social connectivity and network activities.