The term DeFi, or decentralized finance, has become increasingly popular in the cryptocurrency community in the past several years. Many believe that DeFi can be a gamechanger for the global economy and that it has the potential to transform the way we buy, sell, and handle our finances overall.
Keep reading to learn about what decentralized finance is and some of the effects that it could have on the current financial system.
What Is DeFi?
DeFi is a global and open financial system that was specifically designed to work in this modern digital age. It was created as an alternative to the traditional system that still relies heavily on old infrastructure and is often tightly controlled and government-regulated.
The only thing someone needs to use a DeFi application is access to the internet. DeFi in theory allows you to have immediate access to your money at any time while also connecting you to the global financial markets and different currencies.
The purpose of DeFi is to open up the financial markets like never before. Currently, about 1.7 billion people around the world have limited or no access to essential financial services like bank accounts. DeFi could be a transformative solution to this problem, as it works outside of the traditional banking system and doesn’t require people to have all of the credentials and accessibility that traditional banking services do.
So, what’s the point of the decentralized finance system when there is already a fully functioning existing financial system?
How Does DeFi Compare to the existing financial infrastructure?
Essentially, DeFi is a financial system that can host a cryptocurrency blockchain network. Unlike individual cryptocurrencies that decentralize the act of storing and issuing money, DeFi offers a chance to decentralize the entire system.
Another major difference between DeFi and crypto lies in the fact that cryptocurrency coins still depend on the centralized exchange rates in order to be used. In fact, almost all of them are managed by centralized organizations. The goal of decentralized finance is to cut out the middleman and reduce the need to go through banks and brokerages.
Conclusion
DeFi has the potential to change the way the world works. There are both pros and cons associated with DeFi applications. While it could allow many more people to get their foot in the door of financial markets and provide unparalleled opportunities for global connectivity, there are still some known and unknown risks associated with DeFi.
Unlike individual cryptocurrencies that are still limited in use and largely controlled by centralized systems, DeFi could bring revolutionary change by creating the first completely decentralized financial system.
It’s a great idea for anyone interested in the world of finance or cryptocurrency to follow the developments related to DeFi. In the next several years, we could be discussing money in a very different way, so it’s important to stay up to date.