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| Block Chain Cryptocurrency (Pexel) |
Have you heard about blockchain and crypto? It is digital
and immutable ledger money that is nearly impossible to crack. It assists in
making records of transactions and tracking any tangible assets (car, cash,
house, or land). This digital ledger of the transactions you make is spread and
duplicated across the series of computer network systems known as the
blockchain.
DeFi is the umbrella of digital financial applications such
as blockchain or cryptocurrency which will disrupt the financial mediators.
Introduction
Decentralized Finance or simply the DeFi gets its
inspiration from the blockchain, which is the mind behind digital or
cryptocurrencies. Previously, the blockchain enables many entities to get a
hand on the copy of transaction history, which makes it impossible for a single
source to control. This is essential because in such complex systems the human
gatekeepers and centralized systems can limit the sophistication and speed of
transactions by giving the user less authority over their money.
DeFi revolutionized it by elevating blockchain from easy
transfers to complex financial cases. The DeFi infrastructure is based on
eliminating the middlemen, like the central bank, government agencies, PayPal,
Payoneer, etc to approve the transactions.
Defi allows people to generate “smart contracts” or
financial products that are executed automatically on the blockchain without
worrying about brokerage, bank, exchange, or any middle corporation. For
example, auctioning non-fungible tokens (NFTs) that have the potential of
billion dollars.
Difference between centralized banks and DeFI
In centralized payment methods, you have to pay a fee to
banks, corporations, and third parties to facilitate the transaction so that
the cash flow does not get disturbed. For example, if you buy a gallon of oil
by using your visa or credit card, the charges flow from merchant to bank, the
bank forwards the details of the card to their network. The network oversees
the charges, approves them, and requests the bank to make the payment. Then the
bank sends approval to the network. Charges flow from acquiring bank to the
merchant. In simple words, a financial institution sits above your transactions
that not only record, control them but also take the fee.
Cutting off these middlemen is the primary goal of
decentralized finance. That is the idea of DeFi which was known as “Open
finance”
Why the hype?
DeFi is offering unmeasurable creativity and freedom. The
only limit to this decentralized concept is your imagination and the creativity
of people who are interested in product-specific smart contracts.
With DeFi you can create anything you desire by using
digital coins and cryptocurrencies to fund your new digital products and assets
in which you have a financial interest. You can do all this without seeking
permission from any third party or gatekeeper.
The future of DeFi
People are moving towards metaverse, blockchain, and digital
currencies. As DeFi is linked with blockchain directly it provides DeFi a vast
potential to make a place in the global financial market by reshaping the whole
system. With the ongoing trends and noticeable shift towards a more
decentralized system, it is expected that more people will be adopting
blockchain for charge flow. The DeFi will allow people to improve their
transaction diligence by minimizing the negative business and scams.
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