The Steemit Crypto Academy Week 7: Introduction to Defi and Yield Farming
What Is DeFi's Decentralized Digital Currency Financing Everything You Need To Know
In this article you will find important information and explanation of decentralized financing in digital currencies, which is the latest in digital currencies this large and promising market that is developing day after day and the latest of these wonderful markets is decentralized financing which moves the market of cryptocurrencies from speculative markets and project markets to markets approaching real life but decentralized where you can get financing and without the presence of a third party but depends on it blockchain complete article to learn about decentralized finance.
What is DeFi decentralized financing in cryptocurrencies?
What is decentralized funding and who is it?
DeFi is trying to build something different.
DeFi allows everyone to take responsibility for their financial well-being
What are some examples of common DeFi apps?
Is funding here decentralized or central financing?
What is DeFi decentralized financing in cryptocurrencies?
DeFi is an acronym for "decentralized finance",which generally refers to digital assets, smart financial contracts, decentralized protocols and applications (DApps) based on Ethereum. In simpler terms, it's a blockchain-based financial program that can be grouped together like Money Legos.
Computers have disrupted almost every industry over the years. Each innovation builds on past innovation, and digital products and services become more complex. Through technology, we have met the needs of the world to suit our needs. From digital assistants to home automation, programs now affect many aspects of your daily life. So why is the money different?
What is decentralized funding and who is it?
To better understand DeFi, we should first take a look at how traditional finance appears. Although it sometimes seems that money has always existed, this is simply not the case.
In the early days of mankind, goods and goods were the basis of people's barter. But when human societies were formed and developed, so did our economies. We invented currency to facilitate the exchange of valuable things. After that, the currency helped to enter into new innovations and higher levels of economic productivity. However, progress has not been achieved without its cost.
Historically, central authorities such as governments have issued currencies that support our economies. Banks and central institutions were expected to carefully manage and regulate the display of the currency in circulation. As the size and complexity of our economies grow, these central authorities have gained more strength as more people trust them.
You trust your government not to print more money overnight. You trust your bank to store your money safely. When it comes to investing, you trust your assets to a financial advisor. By handing over control of your money to others, hope to make a profit. But the sad truth in our current financial system is that the power that comes with this trust is not always rewarded.
We often have very little say in how companies deal with our investments, or even in how our governments manage the economy. In most cases, investors receive only a fraction of the returns resulting from the risks incurred by these central authorities.
DeFi is trying to build something different.
Decentralized funding aims to create a financial system that is open to all and reduces one's need for trust and reliance on central authorities. Technologies such as the Internet, encryption and blockchain give us the tools to build and control a financial system collectively without the need for central authorities.
There is a saying in the blockchain space: "Don't trust, check."
DeFi allows everyone to take responsibility for their financial well-being
Almost all DeFi apps are built on Ethereum blockchain, the world's most famous blockchain for programming. Ethereum is a blockchain network that maintains a shared ledger of digital value. Instead of centralized power, network participants control the ether version (ETH), the network's original cryptocurrency, in a decentralized manner.
Developers can program applications on Ethereum that can create, store and manage digital assets, also called tokens, on blockchain. These are called smart contracts or decentralized applications (DApps). They are contracts or agreements that are imposed by blockchain Ethereum. Or rather, applications or scripts that only work as programmed on the Ethereum network. You can build complex and irreversible agreements without the need for an average man.
Decentralized financing has the opportunity to achieve a more flexible and transparent financial system. Anyone with an Internet connection can access and interact with blockchain Ethereum smart contracts. Many smart contracts have been created to be open source and interoperable with current smart contracts. Therefore, users can check the smart contract code and choose the services that suit them.
What are some examples of common DeFi apps?
There are many different DeFi products and services, some of which you may find familiar to current financial services but with decentralized development.
The most developed and reliable deFi sectors are borrowing and lending platforms. Like a bank, users deposit money and earn interest from other users who borrow their assets. However, in this case, the assets are digital and smart contracts that connect lenders to borrowers, impose loan terms, and distribute interest. All this happens without the need to trust each other or a broker bank. By excluding the broker, lenders can achieve higher returns and understand the risks more clearly thanks to the transparency provided by blockchain.
Symbols that are called stable currencies are also important for the DeFi ecosystem. You may be under the impression that all cryptocurrencies are volatile. However, stable currencies are tokens designed to retain a specific value and are usually linked to a paper currency such as the US dollar. For example, DAI is a stable currency linked to the US dollar and backed by ether (ETH). For each DAI, there is $1.50 of ETH unlocked in makerdao smart contract as collateral.
Another common type of DeFi application is the so-called decentralized exchange, or DEX in short. DEXes are cryptocurrency exchanges that use smart contracts to enforce trading rules, execute trades and safely process funds when necessary. When trading on DEX, there is no cash player, no registrations, no identification check, or withdrawal fee.
Is funding here decentralized or central financing?
There are varying degrees of decentralization when it comes to DeFi services. Because the truth is, not everything can or cannot be completely decentralized.
As we mentioned earlier, stable currencies are popular in DeFi. However, not all stable currencies are decentralized like DAI. Many of them are actually distinctive symbols representing deposits in banknotes. For example, for each USDC token, there is $1 held in a bank somewhere. You can theoretically "encode" or create a token that represents any real asset in the world. This is where things become a little less black and white, because while you can trade, send and receive these tokens on blockchain, you can't completely eliminate the need to manage or recover the real assets of the world.
Take, for example, buy a house on blockchain. Suppose someone symbolic already to his house, put it in a decentralized stock exchange, and you buy it. Without proper legal preparation and the law on your part, you cannot simply force that person to leave the house regardless of whether you own the digital version. As currently, you will need to refer to the court system in your country of origin to settle the dispute.
In short, there are limitations to technology and sometimes DeFi lines begin to blackout. In due course, the laws will adapt to the changing financial landscape and DeFi's place in the world will become clearer. However, there is one thing clear: DeFi is here to remain.
DeFi doesn't stop anytime soon
If you think the future contains digital money, explore what DeFi has to offer. At the time of writing, the entire decentralized finance market was valued at $494.6 million. Ethereum has become the preferred blockchain for many companies to build their financial products. More and more DeFi apps are created daily.
In conclusion, we learned about decentralized financing in cryptocurrencies and there are many cryptocurrencies that support decentralized financing that make you mortgage your currencies in exchange for financing other people or for requesting financing and then repayment, which is suitable for those who want to invest in cryptocurrencies but may need money and instead of selling cryptocurrencies such as Bitcoin can borrow against their mortgage in a digital currency project that supports decentralized financing.