Decentralized Finance Explained
What is Decentralized Finance?
Decentralized Finance, abbreviated as DeFi, refers to a currency that offers a substitute for the mainstream financial stream. The idea behind decentralized Finance is eliminating third-party involvement and central authorities such as major banks. The concept of DeFi is drawn from Blockchain Technology, which serves to record and effect transactions, thereby doing away with intermediaries and central authorities by substituting them with smart contracting.
What is the role of DeFi?
The Blockchain technology on which cryptocurrencies run ignited a movement that aims at offering solutions to existing problems in the modern world. Decentralized Finance is one of the leading solutions offered by Blockchain in that it solves issues in traditional Finance. Decentralized Finance fashionably provides mainstream financial services unrestrained by a major party like a central bank. Simply put, DeFi aims at replacing traditional methods to liberate users from limitations of financial organizations, such as freezing of funds and hours of operations.
Advantages of DeFi
The main advantage is the decentralization of authority from a major party to the users and dispersing risk. For instance, data relating to bank members are held in one spot, which means that a hacker is likely to compromise it all, but in DeFi, the hacker would have to gain access to various platforms. Decentralized Finance deploys services on a blockchain network, dispersing failure to thousands of nodes, making shutdown or theft impossible—no more single point of failure like in traditional Finance.
What are the services offered by DeFi?
Users can engage in all banking activities; saving, borrowing, and even lending. Using decentralized Finance, people can send money internationally with no additional costs. In other words, Decentralized Finance can be summarized as a global solution to the challenges posed by traditional Finance, giving rise to a worldwide friendly finance platform.