Over the past few years blockchain has become more popular and industries worldwide are eager to use blockchain technology to build protocols and apps and take advantage of its decentralized and distributed structure in the same way the financial industry is looking for technologies that make things easier and safer so the use of crypto assets has grown because anyone no matter where they are can access their purchases make payments And get other benefits.
Decentralized Finance is the new way to manage and keep track of money in a decentralized setting without the help of a middleman but what is defy? and how it works?.
stick with me until the end of the article and let's learn about Defi , since dapps are still new, defi users should look into new products and services like any other computer code smart contracts can be hacked or broken into Accidentally or on purpose decentralized Finance.
Defi is a new Financial technology that uses secure distributed ledgers like those used by crypto ,defi challenges this centralized Financial system by giving people the power to trade money with each other online defi gets rid of the fees that Banks and other Financial companies charge for using their services, People keep their money in a Safe digital wallet and they can send money to other people in just a few minutes anyone with an internet connection can use defi,so
how does Defi work?:
blockchain technology is used in both cryptocurrencies and decentralized finance a blockchain is a database or Ledger that is shared and safe the blockchain and transactions are Handled by programs called dapps in the blockchain transactions are written down in blocks which other users then check if all of these people agree on a transaction the block is closed and encrypted and a new block is made that contains information about the old block the information in each block links it to the block that came before it this is why it is called a blockchain you can't change information in older Blocks without changing information in later blocks so you can't change a blockchain this idea along with other security protocols gives a blockchain its security,
the way decentralized Finance works is always changing any rules do not govern it and its ecosystem is full of infrastructure problems hacks and scams the current laws were made with the idea That there should be different Financial jurisdictions each with its laws and rules defi can do transactions across borders raises important questions for this regulation who is looking into a financial crime that crosses borders protocols and defi apps who would be in charge of following the rules and how would they do it other worries include the system stability the Amount of energy it needs its carbon footprint upgrades maintenance and Hardware failures
So what's next for Defi?
in some form or another money and finance have been around since the beginning of human civilization crypto is just the newest form of digital identity every Financial Service we use in the current Fiat system could be rebuilt for the crypto ecosystem in the coming years We've already seen crypto based solutions for asset issuance in exchange borrowing lending storage and derivatives what comes next as a safety measure the first generation of defied apps relies heavily on collateral you must already have some to borrow more cryptocurrency and use it as collateral traditional unsecured borrowing and Lending will need to use an identity system so that borrowers can build up credit and increase their ability to borrow similar to how ssns and FICO scores work today unlike our identity and Credit Systems a decentralized identity will have to be both Universal and private there are also new ideas in the insurance Market many defy loans today have too muchCollateral,
the Black Swan for defi though is the weakness of smart contracts suppose a hacker finds a bug in the open source code for a decentralized application and uses it in that case millions of dollars could instantly be taken out of the system teams like Nexus Mutual build decentralized insurance that would make users whole if smart contracts were hacked,
We're also seeing a trend toward better user experience blockchain fans made the first generation of decentralized applications for blockchain fans these dats showed how defy could be used in exciting new ways but they were not very easy to use the most recent versions of defi apps put design and ease of use at the top of their priorities this is done to bring available Finance to a broader audience.
We think that crypto wallets will be the hub for all your digital Assets in the future just like an internet browser is the hub for all the news and information in the world today imagine a dashboard that shows you what assets you own and how much you have locked up in different open finance protocols like loans pools and insurance contracts in the open Financial system something magical is happening crypto is bringing money online and we're seeing a Quantum Leap in how money can be used it's rare to see a brand new industry grow from the ground up at first the defi space will have to catch up to the financial services industry as it is now but in the long run it's hard to imagine what new things will happen when anyone who can write code is able to build Financial Services.
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