De-Fi overview — How De-Fi impacts the crypto field
We use DeFi every day due to the convenience of mobility, flexibility, efficiency, and connectivity it provides….
For the foreseeable future, financial and economic services will run on Distributed Ledger Technology (DLT) — a decentralized database managed by multiple participants with no administrator needed. We have seen the dynamic development of this since 2020, and until now — 2023 will mark the acceleration of this transformation.
What is De-Fi?
De-Fi (Decentralized Finance) is a financial system based on emerging technology that removes third-party and centralized institutions from financial transactions.
De-Fi challenges traditional financial systems by empowering individuals with peer-to-peer digital exchanges.
Individuals hold assets in a secure digital wallet, can transfer funds in minutes, and anyone with an internet connection can use De-Fi.
Mechanism of De-Fi
De-Fi uses the advantage of blockchain, therefore all the activities on an app or platform of De-Fi would be recorded through a smart contract protocol and then be converted to a block. These blocks combine and create blockchain(s).
In the blockchain, transactions are recorded in blocks and then verified by other users. If these verifiers agree on a transaction, the block is closed and encrypted; another block is created with information about the previous block. The blocks are “chained” together through the information in each proceeding block, giving it the name blockchain. Information in previous blocks cannot be changed without affecting the following blocks, so there is no way to alter a blockchain — this is held blockchain secure from the bad affection of attackers.
Feature of blockchain
Because De-Fi is based on the mechanic of blockchain, it also inherited features of blockchain including decentralized, permissionless, trustless, transparent, and non-custody.
Why is De-Fi important?
- Accessibility and Decentralized: Anyone with an internet connection can access to De-Fi and transactions from anywhere.
- Low fees and high-interest rates: De-Fi enables any two parties to directly negotiate interest rates and lend money via De-Fi networks.
- Transparency: All the transactions are recorded and published on a blockchain for everyone to review but do not reveal identity.
- Security: Blockchain is immutable, all transactions could not be changed.
- Non-custody: De-Fi platforms don’t rely on any centralized financial institutions and are not subject to adversity or bankruptcy.
DeFi (Decentralized Finance) vs CeFi (Centralized Finance)
Pros and Cons of De-Fi
Pros:
- Inherited features of blockchain.
- De-Fi platforms don’t rely on any centralized financial institutions and are not subject to adversity or bankruptcy.
- Self-manage your assets.
Cons:
- Participation in De-Fi is complex and not easily understood.
- High risks of fraud and scams.
- Poor liquidity.
Components of DeFi
Conclusion
With exciting new applications and approaches to financing, DeFi crypto may well become the future of cryptocurrency. It has the potential to transform financial services for a significant portion of the UK that already hold crypto assets as well as draw more people to the technology.
