What is decentralised finance (DeFi) and how is it different from traditional finance?
I want to bring up a very important topic today, one that is worth reviewing. If you go to the following link: defiprime.com you'll have a good idea of what it is, and you'll agree with me that it's a contextualized topic that concerns us all.
I bring a publication to answer the following question:
What is DeFi and how is it different from traditional finance?
It seems logical to me, in order to establish a difference with what we consider traditional finances, to start by defining them, don't you think?, so let's have a simple concept and let's have some examples as well:
”Finance is defined as the management of money and includes activities such as investing, borrowing, lending, budgeting, saving, and forecasting. There are three main types of finance: personal, corporate, and public/government.” Fuente
To make it simple to understand. Traditional finance is represented by the way our money has been managed for decades, that is through centralized banks, in which we deposit our money and they take care of "guarding it", that is why they charge us, also for making transactions they charge us. The truth is that this money is used by them for other projects, they practically use our money (and everyone else's) to make more money from loans, investments, etc. I am sure that if everyone in the bank decides to take out their money completely, these institutions would not be able to give everyone what they have on deposit. Besides, they could not serve everyone, because even though the bank network is quite large, there is not enough room for everyone. In fact, there is a large percentage of the world's population that does not have access to these banks.
Is that clear? I hope so.
But with the advent of blockchain technology and crypto-currency, all this traditional finance has been coupled with this new technology that gives us some characteristics that traditional finance does not enjoy, let's start with the following, a point very important:
Decentralization
As I said earlier, banks as we know them today are centralised institutions, this on the one hand can make for optimal functioning in terms of decision-making, of course, but the reality is that it is not just that, but that it is to meet a growing demand, which is global and the banking and financial infrastructure as we know it is totally insufficient.
With the use of the blockchain this obstacle is overcome, since it is now evident that it is a global technology that is scalable and this is improving every day allowing up to hundreds of thousands of transactions per day to be carried out, at a really low cost or even without cost, very quickly, and without space limits.
This already makes a big difference between both, don't you think?
This platform is an example of this, we are not charged for the transfers and they can be made from one wallet to another in a matter of seconds. And the best thing: Without any intermediary.
Something very important that together with the Ethereum Blockchain came up was the INTELLIGENT CONTRACT. This eliminates once and for all the need of an intermediary, since it is a Software that is programmed to be executed only when the conditions previously established are met, that is why it is intelligent, programmed, the possibilities of error are very few, almost none.
This makes it possible to create many applications and protocols based on this technology, of which there are already many. If you want to know a little more about Smart Contracts I invite you to visit this publication that I titled Do you have any idea what a Smart Contract is? that I made about this topic.
Having clarified the previous points, which I consider very necessary to understand what the main point of this post is, now if we define it as DeFi.
"DeFi is the abbreviation of decentralized finance that includes digital assets, protocols, intelligent contracts and dApps built in blockchain. We can think of DeFi as an open financial ecosystem where various financial tools and services can be built in a decentralized way. " Source
In this way, intermediaries are left behind and the interaction is directly with the platform. Just like in Hive, where we can, without the need of anyone, make the transactions we want to make. Take the power away from those centralized institutions and facilitate processes, losing less on the way with interests, commissions, fees, among other things.
The reality is that there are already tools to manage assets, analysis services, KYC (Know Your Customer) among many other things. An impressive number of platforms of this type, in the context of DeFi that offer the same services we have in traditional finance, such as loans. But as previously said, without intermediaries, in a public blockchain, where it is not possible to modify what is registered in it.
I hope I've been clear enough and left a good view on it.
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I made a post yesterday about DeFi, i think it's becoming more of a trend in cryptocurrency, but the fact remains that these things still has some huge hinges that needs to be fixed before we could use them reliably.
Hello friend @joelagbo
I'll visit your DeFi publication. It's always good to have several points of view, it's a way to complement information, and to have other points of view.
Thank you for commenting.
Yes, indeed. So many new things in the world of crypts, that need to be improved. But I think you're on the right track.
I have heard a lot about this DeFi and the big question that is always running through my mind is what is really the assurance that this DeFi is here to stay for a long period of time and the sustainance of the tempo and momentum for a long time to come
According to what I have seen in these few years and the evolution of the blockchain and the crypts, there is a lot of volatility.
I know it's a term that refers more to the price of crypts, but in a way the projects based on Blockain, have a certain quality of this. That is, many have started and few have stayed.
In part I think because of the lack of knowledge of the general population.
Thank you very much for your comment.
Nice and easy to understand explanation of DeFi. DeFi is going go bring a revolution in blockchain and with it, many new users as well.
Yes, I also think it will become more and more tangible. All this technology. It needs to be matured, of course. But it will evolve.
@tipu curate
Upvoted 👌 (Mana: 8/16) @swap.app - quick steem <-> sbd swaps
Nice article. I am new to this site, blockchain and cryptocurrencies, reading a lot, and learning, so forgive me if I am naive! One thing that leaps out at me is that there are still transaction fees with cryptocurrencies, and miners seek wealth from mining in the way banks seek wealth from guarding our money. I understand DeFi changes the banking landscape, it will be fascinating to see by how much, and if it goes full circle and ends up similar to the current system. I will keep reading, there are some good articles on Steemit :)
Very good comment friend @tomshearman
Yes, fees are charged, especially at BTC they are quite high compared to the rest.
However, there are many that are totally free of charge. Example steem, in this blockchain there is no charge for transactions. What you send to another user arrives in full, without charge for Fee.
And just like this one, others.
But it's a good thing you've silvered. Interesting. Thank you for that.
Yes, good point about lots being free @josevas217 - I need to find out more about cryptocurrencies. I keep going around in circles when I think about it....there's no such thing as a free lunch and so on :) I'm not quite sure what you mean by 'a good thing you've silvered'. Is that crypto jargon? I ask honestly, I'm playing catch up :)
Hello @tomshearman
NO, it's not jargon, it's just that I use my phone a lot to answer some comments and for some reason the dictionary changed the meaning. I meant you had a very good point planned.
In my blog I have some posts to explain this about cryptomonies, alternative currencies, stable currencies, smart contracts, among other things. I'm not an expert in the area, but I know a few things. It's good to assimilate little by little. Don't despair because it's worse later. There are many new things, the knowledge must come little by little.
Aha! OK, thanks @josevas217 it makes sense now. I thought I was getting lost haha :) And yes, good advice, slowly slowly, I'm getting used to the phrasing, keywords and so on. I'll keep reading :) Cheers :)
DEFI is very interesting. I'm going to go to their website and take a look, your explanation was quite clear
It's very good for me @ramsesuchiha
Take a look at the page. I got a few surprises, which I didn't know were already there.
I hope you're okay with that.
You mention:
This is important because technically, a smart contract can be anything that performs added function. Whereas, an intelligent contract has real purpose for the parties involved.
I believe that smart contracts will be widely used in the future. Because of the security they provide.
I'm more interested in the functionality but we will certainly need it for it's improved security.
very smart friend explanation in my opinion defi is the future and has enormous potential, to my m The option to earn interest on cryptos is very attractive, always I thought it was a genius