The birth of Bitcoin inspired innovations and created the crypto world. Ethereum smart contracts expanded possibilities for DeFi – Decentralized Finance. What is DeFi and what to expect from the new decentralized decade? BTCMEX explains and predicts!
Blending innovations and traditional finance is a hot current topic. If you never heard of it before, DeFi is short for Decentralized Finance – a monetary system built on public blockchains. But what does decentralized actually mean?
Decentralization is the process of distributing power away from a central authority. Most financial and governmental systems are centralized, which means they have a single highest authority, such as central banks. Bitcoin is the first successful decentralized alternative to government money. Blockchain is an open, distributed ledger that can record transactions between two parties efficiently and in a verifiable and permanent way. But what is distributed?
In computing, a distributed system is a system whose components are located on different networked computers, which communicate and coordinate their actions by passing messages to one another. A distributed ledger is a database that is consensually shared and synchronized across multiple sites, which allows transactions to have public “witnesses”.
When it comes to trust, making a transaction, until now, we had to trust one authority or institution, decentralized technology makes our transaction verified by… let’s say, everybody, as the transaction is registered on the open chain. Once this information is confirmed, the transaction is then added to the block and it is attached to the previous block.
Let’s not confuse DeFi with Fintech at this point. Fintech stands for Financial Technology, the technology and innovation that aims to enrich traditional financial methods in the delivery of financial services. In other words, Fintech still serves centralized institutions and doesn’t offer cryptographically guaranteed immutability of transactions. DeFi is a step that kills the bureaucracy of the traditional financial sector.
In 2019 DeFi has become one of the most active blockchain sectors. Today, financial instruments on a decentralized network allow us to store, hedge, borrow, lend, transfer, collateralize, insure, and much more! Pilot projects like stablecoins, decentralized payment networks, credit and insurance platforms, investment tools, etc. – showed that blockchain can be effectively integrated into the financial ecosystem. Blockchain potential has been successfully adopted by banks and stock exchanges in Australia, Japan, the United Kingdom, Germany and South Korea.
One of the main features of the blockchain technology is eliminating the third party. New technologies are replacing traditional brokers. Today, users have the opportunity to freely trade real cryptocurrencies on exchanges with each other directly.
The world’s finance moved from the old closed financial system to the new open opportunities. Crypto companies are increasing their capabilities to facilitate better trading as well as new products and services. More and more countries and authorities are exploring the blockchain opportunities and initiating national cryptocurrency projects. For example, China is one step away from launching the first national crypto!
2019 is called the year of DeFi, and 2020 will certainly be too! Speculation will continue to grow in 2020 with the upcoming Bitcoin halving. New financial products and instruments are continually being developed.