The world of decentralized finance (DeFi) is a revolutionary ecosystem of financial applications built on the Ethereum blockchain and other cryptocurrencies or networks. As time passes, the DeFi takes on more importance in world financial events since this system has created new financial paradigms on the usability of the blockchain and its applications.
Purpose of the DeFi
With the arrival of DeFi, a financial ecosystem is created that is “opposite” to the current banking system since they based it on open source, free access, decentralization, and transparency. DeFi develops new financial products and services, but with the “extra” of offering greater transparency and decentralization; all these small pieces can be combined (like a layman) developing a set of small solutions, which when joined form a great solution for finances, eliminating the need for centralized financial institutions or intermediaries that do not add value, besides generating a decentralized, secure and agile finance system.
Origin of DeFi
DeFi was born with Bitcoin, which can be considered the first DeFi platform in the world. Nick Szabo (the creator of smart contracts), without knowing it, was already pointing to the birth of DeFi when he presented the idea of smart contracts in 1995 (13 years before Bitcoin was created), so we can see that this was an idea ahead of the time; with the arrival of Ethereum in 2014, smart contracts allowed developers to create “anything” they could imagine on a blockchain.
In 2018 and 2019, this ecosystem maintained constant development. In the first months of 2020, it continued with exponential growth, reaching the point of “revaluing” blockchain projects to create new bridges between traditional finance and cryptocurrencies.
Within this new type of decentralized finance, some relevant characteristics have made them different from the rest; below, we mention some of those characteristics:
DeFi uses sophisticated cryptographic techniques to secure the platform and access to it. In this way, a safe environment can be created for users, developers, and the community in general.
High levels of decentralization
The greatest potential of DeFi is their high level of decentralization; they have the ability to act without the need for intermediaries or supervisory entities, which prevents people from putting their personal interests above the interests of the community.
They are not manipulable
Since the DeFi is within the blockchain, there is a guarantee that it will not be used for a different use than it was created or can be manipulated in favor of an individual. It should be taken into account that once the smart contract is developed on the blockchain, alterations can no longer be made to it that modify the agreed conditions.
Transparency and global reach
Transparency is one of the main characteristics of Defi since they are built on free software. DeFi operations are auditable since all operations are carried out within the blockchain network. Another point to keep in mind is that a DeFi platform has no borders because it can be accessed from anywhere globally, as long as you have an Internet connection.
What do you think about this topic? Do you think DeFi is the future of finance?
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