Smart Contracts (self executing contract) on the ethereum blockchain, can automatically perform transactions, if specific conditions are met i.e. (Related Reading: What is Ethereum - All you need to know)Įthereum blockchain network can automatically validate the authenticity of transactions. Aforesaid, the main purpose of DeFi is to remove the middlemen that are involved in financial transactions, and DeFi does so by its ethereum blockchain powered “smart contracts”. Watch this video for a super simple explanation of Decentralized Finance.Ī major difference that sets DeFi apart from traditional financial institutions is the way it works. DeFi increases the transparency in the workings that never existed in centralized finance. Most of the DeFi applications are built on the ethereum blockchain network. You can send cryptocurrency via your DeFi wallet, and perform other financial transactions. (Related Blog: Centralized and Decentralized Cryptocurrency Exchanges)ĭeFi wallet is just a normal wallet except it stores the digital currencies.
Users get access to private crypto keys via the wallet. This wallet is the key to performing financial transactions on the DeFi ecosystem. Every user on the DeFi system has a wallet. Whether opening an account or taking a bank loan an individual has to perform a long list of operations ( in centralized finance) like submitting their original IDs, submitting the address proof, with DeFi you can open an account, trade, lend without submitting your IDs all that without any human rechecks. (Must Check: What is Digital Money? Types, Working, Benefits, & Risks) DeFi seeks to remove the middlemen involved in transactions. Interacting with DeFi simply means that you are interacting with a software.Ī decentralized system can be a combination of blockchain and other open technologies. The concept of DeFi is closely connected to cryptocurrency and blockchains. This system of finance works on the decentralized blockchain network.
It facilitates trading, simplifies the exchange processes, provides interest on investments and can do all of it without having a physical office and human employees. Let’s start from scratch so first what is DeFi?ĭecentralized Finance or DeFi is a system that allows people to make investments, borrow money, send money abroad, and practically enables them to do anything and everything (related to digital money) without stepping out.ĭeFi can be thought of as a bank that conducts multiple operations but has no physical branches. Now you must be curious to know about this new to the fame financial concept. The term that is reinventing the basis of financial systems, that is making it all simple (from investing to borrowing), is decentralized finance.
Imagine stepping into a free finance world, where no rechecks are done for approving our loans, where we can open a bank account within seconds, where sending money abroad is just a click away looks dreamy right!! If you feel it isn't possible in today’s world let me whisper something magical to you, “it's all possible now”.