With track records from bitcoin, ethereum and now DeFi the Blockchain technology is attracting attention on a global scale.
New research data shows the number of daily bitcoin transactions worldwide, There were 351,417 bitcoin transactions recorded daily, At the end of the third quarter of 2020.
As Interest in digital currency keeps growing, Public finance facilities like DeFi, continue increasing levels of democratization in the global economy by enabling internet users to swiftly transfer money from person to person in a fully automated and safe manner.
Before you finish reading you would learn about DeFi, Why it keeps attracting huge attention and how wealth is created with the technology.
So what is DeFi and Why is it so popular ?
What is DeFi
Decentralized Finance(DeFi), is an ecosystem of financial application built with public blockchain technology.
In simple term, DeFi brings financial services to any individual with access to the internet. Users can quickly access Decentralized applications such as loans, insurance, crowdfunding, and derivatives all with smart deices.
Unlike traditional banks, Where you have to trust the Financial Authorities behind the business to manage your money or verify transactions.
DeFi users on the other hand have the ability to borrow funds, take out loans, deposit funds into a savings account, or trade complex financial products, all without asking anyone for permission
Basically, DeFi provides the framework for making decisions as to how to manage your digital currencies, and by design DeFi is permissionless, Meaning you’ll have no man in the middle to block your transaction or freeze your account, It’s just an interaction between you and your blockchain technology, there is no centralized authority involved.
What is the beneﬁt of DeFi?
Today we can see the emergence of DeFi applications that offer the same capabilities as current centralized ones, but now in a decentralized manner.
In fact, using blockchains to power common financial instruments is becoming one of the most popular uses for smart contract applications.
When compared to traditional financial services, Decentralized Finance brings numerous benefits through the use of smart contracts and distributed systems.
As there’s no central party managing how DeFi applications should be used, It quickly becomes the most accepted Financial Institution in the world.
To breeze through lets take a look at the unique benefits of using DeFi services:
- No third parties: Decentralized Applications rely on smart contracts instead of humans to process transactions. No middleman has control over or access to your assets as the majority of DeFi platforms are non-custodial.
- Governed by Users: Since Decentralized applications are open source, Its technology gives every user the ability to make Governance decisions by voting. When it comes to governance, Decentralized services are also special since they move towards decentralization, Decision making is based on the wisdom of the crowd. By holding the governance tokens users can take part in voting on platform governance decisions, The primary difference between the decentralized governance model and corporate governance, however, is that while shareholders can only influence broad changes to the direction that a company takes, token holders in DeFi can influence any element of a protocol, from high-level direction to aspects of its daily operation
- Asset Management: Now Decentralized users can track the whole performance of their digital asset, DeFi asset management protocols allow users to allocate assets to different trading and investment strategies in a non-custodial and trustless way, enforced and automated by smart contract
- Economical: Having your funds electronically is similar to having One global currency, meaning that it is Borderless, Cost-effective, and available for use anywhere in the world. For many people, Digital currencies like bitcoin are the most convenient way to Save Funds and deal with payments between individuals(P2P), customers and businesses, and businesses to other businesses.
- Non-custodial: DeFi applications generally allow that the user remains in possession of the private keys. This is referred to as non-custodial in the blockchain ecosystem. The user is in full control of the money without a trusted third-party. Non-custodial wallets provide an interface for users to manage their assets stored on the blockchain and facilitate interoperability between various DeFi protocols, DeFi applications generally allow that the User remains in possession of the private keys without a trusted third party involved.
- Transparency: Because of the Blockchain technology behind DeFi, There is no real authority on who controls Decentralized services since they run on transparent protocols without a Middlemen every transactional data is made public. This level of transparency around transaction data not only allows for rich data analysis but also ensures that network activity is available for anyone to view and audit.
- Globally Accessible: Services in DeFi are developed in a way that a person from Europe and a person from Asia will have the very same experience and access to features. To begin financing all you need to do is connect your Web3 digital wallet to the DeFi platform of Choice, and start lending, borrowing, or trading with your digital currency. Don’t worry Your account is not tied directly to your real-life identity. Decentralized applications leverage web 3.0 standards for the signing of transactions and authentication. Thereby, drastically reducing the need for AML/KYC and making financial tools inclusive to a broader audience.
- Improved Privacy and Security: Data breaches at centralized institutions, like the May 2019 breach of First American Financial exposed approximately 885 million personal and financial records (Krebson Security, 2019). By definition, a decentralized system does not have a centralized single source of failure that would allow for this type of breach to occur.
- Censorship resistant transactions: A full DeFi system cannot be censored or shut off by governments or large corporations. A system such as this can bring a sense of stability and an alternative option in nations where existing governments and financial institutions may be corrupt or untrustworthy. True decentralization allows censorship resistance, worldwide participation regardless of social status, and dispenses trusted third parties.
All things considered, Decentralized finance is no doubt the next big disruption to the financial system. This means that in the nearest future all financial institutions will be Powered by blockchain technology because of the proven benefits listed above. This new wave of applications and services will promote shared prosperity by bringing financial services to the underbanked and at the same time reducing transactional costs, all while providing users a seamless experience from anywhere in the world.