Tron Fan Club | Everything You Need to Know About Decentralized Finance by @steemtopus
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What is decentralized finance?
Decentralized finance (DeFi) is an umbrella term that encompasses all applications of decentralized currencies and blockchain technology in financial contexts. DeFi includes payments, lending, asset management, derivatives contracts and insurance contracts which utilize open protocols and standards like Bitcoin, Ethereum or a basket of cryptocurrencies rather than local currency or fiat. While some examples may be new to users who are unaware of blockchain technology (e.g., prediction markets), many of these tools existed prior to their integration with blockchain; for example, peer-to-peer lending has been available since at least 2005 through sites like Prosper and Lending Club.
The importance of decentralised finance
Traditionally, finance has operated as a centralized system. This means there is one financial institution that holds all of your money and makes all of your financial decisions. It works reasonably well, but it also requires you to trust another party with a lot of control over your life. With decentralised finance, you hold complete control over your finances. Your money isn’t held by anyone but yourself and even if someone tries to intervene or steal from you, there’s little they can do without access to every copy of your data. It’s true that decentralised finance is new and often experimental technology, so if you’re worried about security, then be careful and do research before choosing a provider for cryptocurrency or smart contracts.
What are the benefits of decentralized finance?
We know what you’re thinking: decentralization isn’t always a good thing. But in finance, it just might be. Here are three of its biggest benefits.
While there are a number of benefits that come with decentralized finance, there are three main advantages: trustless transactions, near-instantaneous payments and democratization. Unlike other financial systems in which transactions must be processed by central banks or other financial institutions, decentralized finance relies on a distributed ledger network maintained through blockchain technology. Because decentralized finances rely on peer-to-peer networks and consensus mechanisms, people can make payments directly from one another without having to deal with third parties. As such, they are highly secure and transparent – making them ideal for security-sensitive applications such as digital identities.
The benefits of decentralized finance are threefold. First, it increases trust in transactions by eliminating the need to rely on an intermediary or other financial institution to facilitate the transaction. Second, it enables near-instantaneous payments, which makes it an ideal way to make remittances. Third, it decentralizes the financial industry, bringing more power to the hands of the people who use these services as opposed to traditional financial institutions that have been historically controlled by and serve the interests of wealthy individuals and companies at the expense of everyday people around the world.
Decentralized finance is on its way to becoming a thing of the present. With some predicting blockchain-based financial tools will soon overtake traditional ones, I have compiled three key benefits of decentralized finance you should know about today.
Trustless Transactions
When making a financial transaction in fiat, there’s always some middleman involved. For example, when using your credit card to buy something online, you rely on Visa or Mastercard. With decentralized finance, there’s no longer a need for any third-party service; transactions are trustless and happen peer-to-peer through smart contracts.Near-Instantaneous Payments
Through decentralized transactions, cryptocurrency enables near-instantaneous payments. There is no longer a need to trust a centralized third party to send and receive funds on your behalf; rather, you can make transfers directly through peer-to-peer networks. This means that you won’t have to wait several days for an international wire transfer to go through—or settle for paying exorbitant fees because it’s a priority transaction. Peer-to-peer payments also make it possible for cryptocurrency users to maintain their anonymity when purchasing goods or services from foreign vendors. (See also How To Buy Bitcoin Anonymously.)Democratization
Decentralization allows regular people to participate in financial markets and profit from crypto gains without needing large amounts of capital or access to trusted third parties like banks. ICOs, for example, are one way startups can raise funding quickly and easily. Just because we're in an era of unprecedented decentralization doesn't mean investing is easier—especially if you don't know what you're doing. That's why it's a good idea to use tools such as those offered by Polymath Network and Gnosis that are designed to help democratize investing.
Why does decentralised finance matter?
One of the biggest benefits of a decentralized system is that it’s fundamentally distributed. If a malicious hacker wanted to attack one bank, they would have to take down every single participating bank in that system. In a decentralized system, they would need to take down every participating computer across an entire network. While centralized systems are certainly more efficient and easier for banks (and therefore consumers) right now, those efficiency gains come at a high cost. ##### Centralization makes banks vulnerable and puts consumer assets at risk if there is an issue with any individual bank or institution. It also comes with increased operational costs – because everything needs to be processed through a central hub and can be difficult for some businesses and individuals who don’t have access to traditional banking services like an IBAN or checking account.
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How does it work?
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What are the risks and challenges of decentralised finance?
The main risks of using decentralised finance are those that anyone faces when making financial transactions online. It is always advisable to use some form of protection when transferring money or providing financial information. Some websites such as LocalBitcoins and Bisq provide a platform for making face-to-face trades, which helps mitigate many risks associated with digital transactions. Remember: if something seems too good to be true, it probably is! When considering your options for decentralized finance, look for platforms with established track records and user reviews. As with any financial transaction, it is best not to deal in large amounts of currency until you are familiar with how everything works.
Conclusions
It is evident that blockchain has become a major game changer for industries across the board, and financial services is no exception. Gone are the days when financial markets were centralized, slow, and opaque. Now you can transfer money around in seconds with a few clicks on your mobile phone; you can instantly send money anywhere in the world at any time of day or night; you have an array of new ways to store, spend, borrow and invest your money; and you can do it from anywhere with an internet connection.
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@engrsayful
Your writing topic is good. You have to increase your activity in the community which is very important. Thanks.