Finance

Published on August 5th, 2021 | by Sunit Nandi

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Decentralized Finance and the New era of global financial system

Decentralized finance, or DeFi, manages financial transactions using cryptocurrencies and blockchain technology. It allows you to have complete control and visibility over your finances and also provides alternatives to the local currency and banking options.

The main technologies that enable decentralized finance are blockchain and cryptocurrencies. Regulatory bodies and gatekeepers now manage almost every element of banking, lending, and trading through centralized platforms.

The main process

When you make a transaction in a traditional checking account, the transaction is recorded in a secret ledger—your banking transaction history—that is owned and controlled by a huge financial organization. Blockchain is a distributed, decentralized public ledger that records financial transactions in computer code.

For the customers it’s easy to check the payments and trades history by crypto exchange platforms, the platforms provide anonymity which is so important today. Exchanges have mobile apps, due to SaaS development.

DeFi is about changing actual financial service supply into software that runs on a blockchain as “smart contracts.” The Ethereum (ETH) blockchain is seeing the most of this type of activity right now, but there are a few other blockchains that are seeing an increase in DeFi activity. You can also use Ethereum to send money. This allows you to pay someone their income by the second, providing them immediate access to their fund etc.

Risks

There is always a risk in everything, and the DeFi is not an exception. The risk includes the regulation process and the technology. As there are no third-part companies or banks, there’s a probability that funds can get lost. Technology risk is when there would be an issue with developers code, then there could be weaknesses and failures within a DeFi.

While a blockchain is extremely impossible to change, other components of DeFi are vulnerable to hacking, which could result in money theft or loss. All of the potential use cases for decentralized finance rely on software systems that are vulnerable to hackers.

Also, there’s no insurance and regulation while you use DeFi. Despite the fact that DeFi loans are secured by other crypto assets, borrowers who use DeFi protocols cannot be held liable if they are unable to repay a loan properly.

What should beginners know?

First of all, you can get information about DeFi and this whole process, on Youtube watching different informative videos. There are many videos that you can find there by choosing those which are eye-catching and well-designed by random shape generators.

It will be a good decision to consult with people who know DeFi better and can help with technical issues. There are some nuances and also there’s a money issue, so being careful and attentive is so important to avoid problems and unpleasant situations.

Then,start using crypto wallets, through which you can enter the world of DeFi, but while doing that don’t forget to keep your privacy due to private keys and be careful not to lose that.

Conclusion

The future of DeFi is so promising. As modern technologies and new cryptocurrency are becoming more popular and widespread, and also the global financial system is changing so fast, the usage of DeFi and its expansion in different spheres will be increased, so very soon it will be used by more people and organizations.

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About the Author

I'm the leader of Techno FAQ. Also an engineering college student with immense interest in science and technology. Other interests include literature, coin collecting, gardening and photography. Always wish to live life like there's no tomorrow.



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