What is Decentralized Finance (DeFi) ? - A Simple Guide for Beginners
08 March 2021
Decentralized Finance (DeFi) is an alternative to all the current financial organizations and services. In DeFi, the financial system is decentralized which leads to absence of third parties (or) intermediaries. They are completely built on blockchain technology, the distributed public ledger, encrypted by cryptography protocols.
In simple words, imagine if the existing banks are not controlled by anybody and they automate the loan process on its own withoutany manual intervention and racial/status discrimination. That’s exactly what DeFi does.
Hence, users of DeFi protocols enjoy more benefits like,
- Minimal transaction fees.
- Better security.
- Improved ownership over your funds.
All users need is a smartphone with an internet connection. Such is the level of financial freedom offered by applications based on decentralized finance.
Decentralized finance platforms are not controlled by any central administrator. Instead, they run on smart contracts - a pre-coded mutual agreement between the parties involved that functions are executed based on the conditions set. Hence, there’s neither a financial body nor a lawyer involved in the process.
DeFi-based applications are mostly launched on the Ethereum network because Ethereum blockchain network offers more stability to decentralized applications.
Know more ---> Benefits of Decentralized Finance (DeFi)