DeFi The Next Big Thing In Cryptocurrency

DeFi: The Next Big Thing in Cryptocurrency! Is it so or is it not? In this article, we will talk about DeFi, its potential and its risks and what makes DeFi The Next Big Thing In Cryptocurrency.

What is DeFi?

DeFi or Decentralised Finance is a form of finance that has taken off with the help of blockchain technology. The term itself is a collective term for financial services that can be availed with the help of the internet.

DeFi is based on blockchain technology used in Cryptocurrency meaning it is decentralised. We’re familiar with the traditional banking system that’s highly centralised, but in DeFi there might be several entities that have a copy of transactions. This eliminates the sophistication of banking and reduces the time required to execute transactions.

How does DeFi Work?

Most DeFi applications on the web are based on the world’s second-largest Cryptocurrency, Ethereum. The potential of Ethereum in more complex financial applications was highlighted by its creator in 2013 in the original white paper.

With the help of Ethereum Blockchain, DeFi uses an application known as DeFi Protocol with the help of smart contracts. To explain, smart contracts are what acts like the middlemen in traditional financing and are computer programs that automatically do legal documentation according to the terms of the contract. Considering they are computer programs, we eliminate the problems of human error and the slow speed of transactions.

Perks of DeFi

Famously hailed as the Bank killer DeFi is already a state of the art technology. Keeping this in mind, Some of the perks of DeFi can make Banks pointless.

Interest Rates for Investors

Traditional banking is notorious for paying as low-interest rates as possible. Their business model is based on receiving money for deposits in accounts at low-interest rates. And, then using that sum to lend loans at high-interest rates. Then using the interest that’s on the loan, pays off the received money. As a result, this business model is profitable for the Banking industry. With DeFi investors can expect high rates of return compared to traditional banking which is one of the biggest reasons why DeFi is getting so popular.

Control over finances

Banks can freeze accounts and seize property that they’re lending from investors. When we talk about DeFi we don’t see this scenario. Furthermore, DeFi allows absolute control over one’s finances and nobody can deny them services. Also, traditional banking has humans who sanction loans or manage finances are prone to making errors. This however doesn’t happen with DeFi as they use smart contracts to do the job. Smart contracts are the law and it doesn’t distinguish or discriminate against the users, it acts blindly.

Transparency

As mentioned earlier, DeFi uses Blockchain technology that’s a public ledger that logs all the activities and is available for the public to view. On the contrary, traditional banking has almost no transparency, anyone can view DeFi transactions. In the case of DeFi, there’s no like to a bank account the transactions, instead one uses a pseudo-anonymous account for their transaction. This enhances the security of DeFi as well as makes it more secure.

Elimination of Bureaucracy

To set up a bank account there’s a lot of bureaucracy involved. DeFi eliminates bureaucracy and makes it pointless. Smart Contracts do this work when we talk about DeFi. Additionally, a lot of documentation is necessary to set up a bank account and for the KYC procedure. There is almost always, a requirement for a state-issued ID. In the case of the DeFi, almost no documents are required and one can take a loan without the need for identification for ID cards.

Opinions about DeFi

With the arrival of innovations, it’s wise to have a thorough discussion about the pros and cons. Many experts have praised DeFi for being a revolutionary new application of Blockchain technology, others are quite sceptical about it.

Some people have claimed that DeFi has the potential to make conventional banking obsolete others have concerns over the legitimacy of DeFi. Whereas critics of DeFi have raised concerns over the security regarding the finance and going as far as calling it a ‘Ponzi Scheme’.

Additionally, the security concerns regarding DeFi are fraud and theft. As a result, these issues account for over $10 billion of stolen value from the investors. Unsurprisingly, this has raised a lot of red flags and developers are working restlessly to resolve issues and make DeFi what its developers aimed to create.

End Note

The next big thing in the domain of Cryptocurrency is DeFi. Hope this article gave you some insights about DeFi and the potential it holds.

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