DeFi, or decentralized finance, refers to the way that blockchain technology is being used to develop new financial products and services.
DeFi is still a relatively new idea and is still evolving, but it’s gaining popularity. Many people see it as an alternative to fiat currencies because it can be used at any time, anywhere in the world and without relying on banks or governments to facilitate transactions.
What is DeFi?
The main idea behind DeFi is that users can perform financial transactions without having to rely on banks, or any other traditional financial institution, for their security and safety. Instead, they can use smart contracts and other blockchain-based solutions to interact directly with each other.
This means that instead of going through a bank when you want to send money from one person to another, you can just use a smart contract – and it will work the same way as if the money was being sent through a bank.
In this way, DeFi allows people who don’t have access to traditional banking services (for example because they live in a place where these services don’t exist) to still be able to make payments through an online system.
What is centralized finance?
Centralized finance is the traditional financial system that we all know – where your bank manages your money for you and decides how much interest it can pay on your savings account.
A central authority also happens to control it – in this case, banks and governments. And not only do they control centralized finance: they own it outright! If something goes wrong with your money or account, there’s no one else to turn to except these authorities.
How does DeFi work?
DeFi works by using open-source, peer-to-peer networks that let people trade, lend, or borrow money without going through a traditional bank account. This means that you often don’t have to pay fees and can access your funds at any time – no matter where you are or what time it is.
DeFi platforms do not require lengthy applications and most are transparent, meaning anyone can see all transactions made through those platforms at any time – even if they don’t have an account on those platforms themselves!
DeFi can also do everything that centralized finance can, including lending, loaning, trading, and saving.
Conclusion
So now you know what DeFi is and how it works.
If history has taught us anything it’s that any new technology that comes along will have its fair share of naysayers. As more people become aware of DeFi, we should see it become more mainstream and the benefits will be realized.
I’m excited to see where DeFi will take us!
Thanks for reading
Iain McClafferty – The Five Year Mortgage
