Cryptocurrency, Blockchain Technology, and Decentralized Finance-all of these have created a sea of change in the financial market. Every day new technologies associated with these make news in the media. Youngsters and investors are enthused about investing in and exploring the possibilities of cryptocurrencies. Thousands of cryptocurrencies enter the money market every day. This has even forced various governments to go for digital currencies.
Decentralized Finance or DeFi is a term that is commonly used for various financial applications in cryptocurrency or blockchain. DeFi helps to remove the intermediaries in any financial transactions. DeFi derives its inspiration from blockchain technology which is not controlled by a single source. In DeFi, it widens the use of blockchain technology-from simple value transfer to more complex financial use cases.
DeFi helps in the quick transfer of funds and anyone with the internet can use DeFi. It eliminates the fees that banks and other financial institutions charge. In DeFi money is kept in a secure digital wallet.
The growth of DeFi has been quick and steady. Now there are over 200 DeFi platforms available worldwide.
How did the growth of DeFi happen quickly?
The primary reason for DeFi’s growth was the rise of DeCentralized exchanges (DEXs). To say a bit about these exchanges- they came into existence since their inception in 2009. But they were not widely used until 2017 when Ethereum launched its first DEX called EtherDelta. It allowed users to trade cryptocurrencies without relying on a third party like Coinbase or Gemini. But the issues of price volatility and scalability prevent them from competing with centralized exchanges.
DeFi and the Future of cryptocurrencies
There have been a lot of changes in the way people about buying and invest in cryptocurrencies. The traditional centralized exchanges dominate the market still but decentralized finance has become more significant. According to experts in this field, decentralized exchanges are the future of cryptocurrencies.
At the beginning of cryptocurrencies, the idea was to remove the control Banks and other financial institutions have over the money. But the first crypto exchange was still centralized which required an authority to validate all transactions. This however limited the possibility of cryptocurrencies in general. A lot of damage can occur if a hacker managed to get into the system.
The issues with these traditional cryptocurrency exchanges have led to the growth of DeFi. With DeFi, there is no need for an independent authority to validate the transactions because self-executing contracts validate the transactions. And the system keeps track of transactions on distributed ledgers or blockchains which is impossible for hackers to break.
Wrap up
- Cryptocurrency, Blockchain Technology, and Decentralized Finance-all of these have created a sea of change in the financial market.
- Decentralized Finance or DeFi is a term that is commonly used for various financial applications in cryptocurrency or blockchain.
- DeFi helps to remove the intermediaries in any financial transactions.
- Now there are over 200 DeFi platforms available worldwide.
- The traditional centralized exchanges dominate the market still but decentralized finance has become more significant.
- With DeFi, there is no need for an independent authority to validate the transactions because self-executing contracts validate the transactions.