Until the advent of the Internet, there was no question that states and central banks controlled currencies and money flow in general. With each transaction, we gave full control of our assets to a third party. To avoid the arbitrariness of central banks and governments, and with the help of the opportunities offered by the Internet, people have begun to think about creating different currencies, over which no one will have control.
This is how cryptocurrencies were created and suddenly at every turn you started hearing about blockchain and similar terms that seemed to have originated overnight. Who bought Bitcoin for example for a small amount of money 10 years ago, today is a very rich man. The popularity of cryptocurrencies is growing, precisely because they are completely anonymous. This has led to the emergence of many cryptocurrencies, but it has also created certain problems. Since everything was decentralized, a system was needed that allowed digital asset management. That is how DeFi appeared, which is the main topic of our article. Find out why every crypto trader is talking about DeFi.
What is Decentralized Finance (DeFi)?
The first thing that is important to understand is that Defi is not some particular type of technology, but a new approach to finance to improve the financial instruments we have used so far. DeFi was created by the same developers as Ethereum, which is the second most popular cryptocurrency in the world, right after Bitcoin. The goal of the creators of DeFi is precisely to implement the traditional banking services to which we are all accustomed to modern technologies such as cryptocurrencies. To participate in all this, you only need a smartphone or any similar device, which gives unimaginable opportunities to all people on Earth. We can most simply explain DeFi as an alternative solution to all the services that banks offer you, such as savings, loans, and trading. The offer of services is very large, but it is much more flexible than with traditional banks. Everything can be arbitrarily determined and that is why the flexibility is great. DeFi offers banks, exchange offices and pawnshops where contracts between two people are concluded using software and they do not need to know each other’s identity at all. Many refer to DeFi as Open Finance, so be familiar with both terms. Click here to learn more about one of the protocols available.
Reasons why every crypto trader is talking about DeFi
1.There is no third party
Until now, it was possible to perform only the simplest transactions without a third party, but now everything is the same as when you go to a brick and mortar bank. That is why this has become an absolute hit, because all of a sudden you have blockchain exchanges, insurance and everything else available. Since there is no third party that authenticates the transaction, the confirmation of each transaction is stored on many computers and thus counterfeiting is prevented. There are no secret contracts either, because everything is available to everyone. In order for DeFi to work, Dapps are needed, which means decentralized applications.
All these decentralized applications, better known by the acronym Dapps, are open source, which means that anyone can modify them. That is why any developer who has a new idea can implement it and thus further improve all these apps. As you can see everything is completely free and open, so it delights every crypto trader. You just need to have an online wallet and you can do whatever you want with any dapp.
Providing financial services to everyone
No other financial system has been able to expand the availability of services in this way as DeFi has done. Since billions of people do not have access to brick and mortar financial institutions, something like this, decentralized, was needed to overcome the great distances and poor infrastructure which is huge problem in many parts of the world. Everything that is normal in the Western world is not for many, so don’t be surprised if you don’t fully understand the importance of DeFi for expanding financial services globally.
Significantly cheaper cross border transactions
Although trade with other countries has been significantly facilitated due to the emergence of online payments, taxes and fees for cross border transactions are still very high. This demoralizes many of doing business with someone abroad, because when they pay all the fees, that job is no longer profitable for them. DeFi has already managed to halve all costs incurred as a result of cross border transactions. Due to the exclusion of various intermediaries from the whole procedure, the fees have dropped below 5 percent, and it is predicted that they will go even lower. While they used to be even up to 10 percent which is enormous.
After all, however, the security of funds and data is paramount when it comes to any financial transactions. Many times in the last few years, we have witnessed major hacker attacks in which the financial data of over a hundred million people has been stolen. It is estimated that in the hacker attack last year, one billion people were the target of the attack. This is all possible because the systems are centralized. And when they are decentralized, as is the case here, it is impossible to get hold of the data, because the sources are all over the world. That’s why you’re completely safe when using a blockchain.
No one can seize your funds
Although we seem to live in a free society, many fear that the phasing out of cash will lead to governments having complete control over us. If we do something that is against their will, they will be able to seize all our funds, because they control the banks where our money is and cash is increasingly falling out of use. The DeFi system offers you complete security because it cannot be influenced by any country in the world. This gives everyone confidence that no one will be able to impose censorship.
We are witnessing history because such a financial system has never been designed before. We can freely say that this whole system acts like a modern Robin Hood. We have told you the basics about DeFi, and it is up to you to learn more in that topic and get actively involved in cryptocurrency trading.