Are you curious to know why cryptocurrencies are gaining so much attention? If you wish to understand about the fundamentals of Blockchain Technology and DeFi, this article is for you. A lot of unfortunate people think that learning for the sake of learning is something for children, and maybe students. If you are one among them, for you, this article will make no sense. I can talk about blockchain all day long but for now, we are only going through the basics.
What is DeFi?
DeFi (Decentralized Finance) is a movement to make a new financial system that is open to everyone and doesn’t require any trusting intermediaries such as banks. Decentralized Finance (DeFi) rely heavy on cryptography, blockchain and smart contracts. They are main building blocks of the system. Ok, I got it! Let see what these terms means first.
Are you ready for blockchain?
First of all, understand this! Blockchain technology is not all about Bitcoin. Bitcoin is indeed a small part of Blockchain technology – perhaps the largest use case of Blockchain technology so far. In Blockchain, People can trust each other and transact anything from music to money, even votes- peer to peer. If Bitcoin is Facebook, Blockchain is social media. Bitcoin might not be here after 50 years (Not my opinion), but Blockchain going to stay here forever.
Blockchain is a collection of records linked with each other, which are strongly resistant to alteration and protected using cryptography. In this platform, Trust is achieved by codes, not by middle man. In simple words, it is impenetrable. So we have a system which cannot be hacked or cannot be forged! Doesn’t it sound like a near-perfect system?
Now for those who doesn’t know what smart contacts are,
CODE IS LAW:
Think of a scenario where we don’t need lawyers, when code dictates what we can or cannot do. Smart contract is a piece of code that can be executed automatically in a deterministic way. The contract’s code is usually stored and executed on the Blockchain to make it trustless and secure. So now you know – Blockchain is an impenetrable system and Smart contracts are digital contracts inside it. Clear?
Shall we have a glimpse at the use case of smart contracts?
Smart contracts have capabilities of receiving, storing and sending funds and even calling other smart contracts. They aims to remove human factor from decision making. For instance, imagine how a Vending machine works? It can be taken as a smart analogy for smart contracts. A typical vending machine is programmed in a way to make transaction based on input.
Now let’s move on to decentralized system,
You might be thinking- we have visa cards, ATMs, online banking transactions. Then what is the relevance for blockchain and decentralized finance?
What you see here (in ATMs, Visa and Master Cards) are only the front end of our existing financial system. There is a backend and it hasn’t changed in decades. Banks are now working with a fast digital front end and non-digital outdated back end. I will make it simple for you.
Do you believe our current financial system is unbiased? Honestly I don’t think so! Do you think we are treated equally?
When banks make decisions behind closed doors with permission from higher level authorities (which we are not allowed to participate in). On other hand DeFi is a permissionless, open source, decision making system that is cheaper, with no intermediary charges. This is a reality now because it is secure. Thanks to blockchain system.
I am a blockchain optimist who believes after two decades, financial and business world will be running on blockchain as a decentralized system with the help of smart contracts,
Why block chain and DeFi?
- Easier way to complete transactions (faster)
- Transparent and global (Doesn’t require a central authority)
- Accessible to anyone with internet.
- No hacking – Immune to counterfeiting.
- No technical issues – protected by strong and complex encryption system.
- No transfer limits.
- No much transfer charges.
You think that’s it?
It can promise all the facilities banks can provide us.
- Lending and borrowing
- Stable coins
- Dexes – decentralized exchanges
- Margin trading
Personal Opinion (No financial Advice)
I will conclude this article with a final statement. Think about internet in 80’s 90’s. The world was not ready for internet. But there were die-hard technologists – the first users. Those people foresee what internet is when everyone was afraid to accept it. Backend problems and bugs were there! This so-called early adopters Invested in this protocol. They promoted it and many invested their money in it. Then, huge public intuitions and investors were attracted by internet. Gradually came advanced, safe technologies and interfaces. Rest is History. From then onwards, Internet is adopted by main stream adopted all over the world. As much as they were optimistic about internet, I am about blockchain and DeFi. Can’t predict where the future will take us!