Top Advantage of Decentralized Finance (Defi)- Complete Guide
As we all know bitcoin and cryptocurrencies are taking a revolution in the finance sector. Its focuses on creating a decentralized money transferring system that is not controlled by anyone.
In the centralized financial system, all of your money is controlled by banks and the government. They use your money for their benefit.
Lots of different type of cryptocurrency exchanges are available that helps to transact, stack, and use your digital assets.
Because traditional finance systems are run by humans, they can be prone to corruption, fraud, and mismanagement.
The problem we face in Traditional Finance System:
There are some basic problems that we face in our traditional finance system:-
- They have lots of hidden charges on transactions or accounts that they don’t tell you
- Banks may be shared your personal information with third-party banks and authorities
- You will have to wait in long lines for any problems or support
- Banks may restrict your account or prohibit you from transferring money to other parties
- They charge high-interest rates and apply high charges on loans and transactions
- Lack of access to these financial sectors sometimes prevents people from being employed
Before we move ahead we need to understand what exactly the Defi system is.
Decentralized Finance (Defi) Explained:
Decentralized finance is a blockchain technology-based version of the traditional finance system. It uses smart contracts to maintain the system and verify transactions.
Ethereum is one of the most common blockchain networks that use in the decentralized Finance system.
With the Defi platform people can borrow money from others, trade cryptocurrencies, get insurance against risks, and speculate on price movements on a range of assets in order to earn interest in accounts such as savings.
Top Advantages of Defi System:
Read the following advantages of Decentralized Finance that help to understand more about the Defi system
1. Permissionless
The first and most important benefit of Defi is decentralization which helps to reduce the need for dependency on centralized corporations.
Furthermore, Decentralized Finance (Defi) also reduces the dependency on centralized institutions for server space, data storage, oversight, and other factors.
Defi solution runs on the world’s second-largest blockchain network Ethereum, ensuring simple, secure, fast, and effective access to financial services for every individual.
2. Immutable:
One more great benefit of cryptography or a decentralized system is immutability. Another great advantage of cryptography or a decentralized system is immutability. This means that once the transaction is done we cant remove it. In cryptography consensus algorithm such as proof-of-work has helped in achieving actual immutability.
3. Transparency:
Another benefit is the transparency that we see in Defi platforms. Transparency is one of the important factors that help to improve users’ trust in decentralized systems. The cryptographic principles for blockchain also ensure the documentation of information only after verification of authenticity. In the Defi application, you can identify who made the transaction, at what point in time, and in which way.
4. Leading and Borrowing Application:
Defi system has also provided peer-to-peer lending and borrowing solutions that offer substantial promising benefits for end-users. With the help of smart contracts, they provide you assurance to eliminate the intermediaries like a bank (that is responsible for verification of transactions in traditional finance). The smart contract is also responsible for the verification of the process associated with lending and borrowing transactions. It takes minimum time to verify the lending and borrowing application account.
5. Saving Applications:
By using DeFi platform, people can effectively manage their savings. Users could start earning fixed compounding interest on their assets. These types of applications provide users with the ability to plug in various lending protocols to improve their ability to earn interest.
6. Tokenization:
Crypto tokens are run on an existing blockchain network. They work as digital assets but they have different features and uses. Such as utility tokens native for a particular dApp, real estate tokens, or security tokens. Crypto tokens could include digital currencies, fiat currencies, oil, or gold.
So, We can say that Decentralized Finance (DeFi) solves most of the major issues which have in our traditional finance system. But we should not forget that anything is not perfect in this world. So, DeFi system also has many problems but has different from the traditional problem.
