DeFi is a fairly new term that is frequently encountered when discussing cryptocurrencies and blockchains. As a reminder, cryptocurrency is a digital currency – having no physical existence, but being purely virtual – decentralized ne not dependent on a financial organization specific as the Central Bank. As for the blockchain, it is a technology allowing storage and transmission of data in a simultaneous, secure, transparent and without the intervention of a central control body.
So what is DeFi in all of this? How does it work and what is its usefulness ?
Definition of DeFi Crypto
DeFi is short for “Decentralized Finance” which literally means “decentralized finance. In other words, DeFi brings together financial services that operate in a decentralized way, that is to say based on public blockchains. Note that the most commonly used blockchain currently is called Ethereum.
DeFi offers classic banking services, such as the possibility of take out loansof take out insurance Where to save and perceive interests. What differentiates this system from traditional banking services is at the level of the steps which are:
- Much more fasteven instantaneous;
- Simplified without the need for paperwork of any kind;
- Without intermediary such as a bank advisor;
- Cheaper with fees lesser.
How does DeFi Crypto work?
The principle of operation of the Defi is quite simple and complex at the same time. The system uses cryptocurrencies, smart contracts and DApps. Knowing that cryptocurrencies are the main transaction currency in DeFi.
Smart contracts are actions that run automatically when certain conditions are met. This technology eliminates intermediaries in transactions. In order to coordinate the operation of the system, DeFi also uses DApps or decentralized applications that are based on the blockchain. One of the most frequently used DApps is the digital wallet in which cryptocurrencies are stored after the trades.
Read also Understand Staking in just 3 minutes!
What is DeFi cryptocurrency for?
DeFi has a multitude of possible uses. Here are some uses that are limited to the field of financial services:
- Obtaining a loan : if you need financial resources, DeFi allows you to obtain them easily and quickly without going through traditional banking;
- Realization of savings : thanks to DeFi, you can save your crypto-currencies in order to obtain regular interest and make your investment grow;
- Crypto Asset Trading : it is also possible to buy, sell and exchange your crypto-currencies peer to peer without going through intermediaries.
Who uses Decentralized Finance and why?
As you can see, DeFi is for both individuals and businesses. It is useful for anyone planning to use financial services in a decentralized way and does not discriminate between users. Moreover, the objective of this technology is to gradually replacing the current financial system which can be complex, slow and overly restrictive.
Conclusion: Let’s recap DeFi!
To recap, DeFi is a version modernized of the banking and financial system as we know it today. This ecosystem is still young and he will be brought to evolve to improve over time. Within a few years, decentralized finance is likely to make fiat currency transactions obsolete.