Introduction to DeFi
Part 1 of 4 for the Guide to DeFi & everything DeFi through Durch.net. An introductory guide on DeFi for beginners.
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What you will understand from this guide:
Introduction to DeFi
Why DeFi is important
What exactly is DeFi and how different it is from the current system
General characteristics of DeFi
The whitepaper from Satoshi Nakamoto in 2009 on Bitcoin, the asset, its concept, and its underlying technology spawned a thriving business. Cryptocurrencies in general revolutionized the way people, businesses, banks, and governments viewed money. Different domains exist in the world of the crypto and blockchain sector, where initiatives, startups, and businesses build solutions for diverse use cases. This gave birth to a lot of ICO in the last Bull run in 2017 which you may be aware of. While most ICOs ended up being scams, there stood out many promising projects that are catching attention in the current Bull Market.
As we entered the Bear market after 2017, several projects stuck to their promises, through collaboration, innovation, and with a vision of decentralization, many focused and focused on finding a solution in many sectors in the current world.
One specific sector that was influenced strongly in the past years through blockchain was the finance sector, which slowly led to the birth of DeFi, thanks to blockchain technology and the revolution it started. You can think of DeFi as a part of the overall crypto sector that provides many of the conventional financial world's services in a way that is managed by the people rather than a central body or entity.
This guide will guide you through the inception of DeFi, to the latest market updates and most promising projects out there in this ecosystem.
Why DeFi?
The money supply today is regulated by a small number of central banks, which work along with a small number of corporate banks to keep the world running on financial offerings. While that structure has kept the world economy functioning for more than a century, it is not perfect and comes with flaws on its own. Accessibility is one of them. There’s still a huge part of the world with no access to a proper financial system, let alone even have access to credit and many other financial services. Secondly, the current system incorporates someone in charge or essentially a middleman, whether it is a corporation or a person, who is in charge of controlling and providing these services to you. This is problematic at best including mismanagement, fraud, and corruption, to mention a few.
Now imagine, in the same way, that Bitcoin decentralized money, what if we could decentralize the financial system as a whole? That is precisely what DeFi is about. By eliminating middlemen and substituting them with smart contracts, Decentralized Finance decentralizes traditional finance components.
To understand it simpler, think of getting an instant loan or credit loan and generating interest on your saving without having a middleman or central entity handle it for you.
What is DeFi?
DeFi is a system of financial products that are open, permissionless, and networked. In fact, DeFi is an overlapping network of dApps (Decentralized Applications) and Smart Contracts, allowing participants to access a wide range of financial applications and products like saving, investing, trading, market-making lending, and borrowing, derivatives, exchanges, trading, etc.
The permissionless, customizable, and open-source code in the ecosystem allows anyone to easily develop on top of pre-existing apps. This leads to a lot of clones and forks in the ecosystem, which bring risks and along with it. Through Durch Newsletter, we promise to bring you the most trusted and legit projects that actually work with focused goals and visions.
We help you stay clear of rug pulls and safely yield farm and save your investments. Not familiar with those terms that we mentioned? Don’t worry, keep reading, we at Durch.net work with a vision to help you onboard crypto and learn the amazing technology of blockchain and crypto space simply.
Characteristics of DeFi
1. Open & transparent
Thanks to blockchain technology, we now have a parallel financial system that is new and open to everyone around the world. Anyone with a simple internet connection and a Web 3 wallet can access and interact with DeFi products & services.
There is essentially no border here. Unlike the current financial system which is caged with restrictions and limitations, DeFi enables anyone from anywhere to participate equally and freely. You can think of this are the beginning on the internet where information and data were being transferred, and now we have the opportunity to do the same with money and financial application services.
2. Non-Custodial
There are two types of cryptocurrency wallets: custodial and non-custodial (DeFi/ Web 3 Wallet). Custodial wallets in essence store your private keys on a server, while non-custodial wallets offer full control over your funds.
Your Web 3 wallet being non-custodial means that there is no 3rd party like a bank or a service managing your money. This gives you complete control over your cryptocurrency and funds in your Web 3 wallet.
Of course, keep in mind, this comes with a certain amount of risk, as you are completely responsible for your wallet and funds, in case you lose access to your private keys there is no way for anyone to help you access your funds. As to compare with a real-world example, if you lose your wallet on the street, your bank is not able to help you get your wallet back.
3. Decentralized
Blockchains power a new financial system, and they're run by thousands of nodes (computers that run the blockchain software) all around the world, making them nearly hard to censor or prevent.
DeFi platforms are created to be governed by a community of users rather than centrally controlled, on top of this fundamental layer of decentralization.
Users gain ownership of their financial applications, allowing them to participate in critical choices and benefit from their growth and success, including proposing modifications themselves. The idea is to ensure that no centralized entity can seize control of cash or modify the rules of the game unilaterally.
Continue to part 2 of this guide…
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