“DeFi or Decentralized Finance is the anti-centralization tool that challenges all the concepts of centralized finance and has the ability to turn the complete financial world upside down. The tamper proof technology of blockchain can create a decentralized financial architecture in which the financial applications and the financial data is stored on a distributed ledger throughout multiple nodes in the blockchain network and the smart contracts govern the rules of the network.”
What is DeFi?
DeFi stands for Decentralized Finance and is the exact opposite of centralized finance. As in a centralized finance, the financial system is governed by a governing entity such as the central bank or the government, it is prone to tampering and a person’s hard earned money is at the mercy of the governing authority. To counter this centralization and excessive control, the concept of DeFi became a vision with the advent of blockchain technology. The tamper proof technology of blockchain can create a decentralized financial architecture in which the financial applications and the financial data is stored on a distributed ledger throughout multiple nodes in the blockchain network and the smart contracts governs the rules of the network. This can create a human control free financial environment and thus prevent frauds and financial theft.
How DeFi can turn the Financial World over its Head?
Decentralized finance has the ability to challenge the issues with centralized finance and can even solve them. The following are the advantages that can be achieved with DeFi:
Removes Human Error and Mismanagement
One important drawback of centralized finance is the financial crises caused by the mismanagement by the governing authority or the losses occurring due to human error. The DeFi is governed by the smart contracts that is error free and the possibility of mismanagement is almost 0. Thus DeFi can simply remove human error and faulty intentions from the financial sphere.
In a centralized financial system there is a huge time loss due to the set procedure for performing any transaction. There are a number of documents and other stuff that has to be verified from the central authorities or banks and thus requires time. DeFi provides the capability of automatic online verification and the internet is the only requirement that every user must have access to.
In the centralized finance environment there is a requirement of permissions from the central authority to perform a transaction and to even have access to your own money. The DeFi provides you the actual ownership of your assets and there is no requirement of any kind of permissions for performing any financial operation. This shifts the control of the assets of finance from the central authority to the actual owner of the asset.
Thus DeFi or Decentralized Finance is the anti-centralization tool that challenges all the concepts of centralized finance and has the ability to turn the complete financial world upside down. Many experts believe that DeFi is the future of finance as the current centralized finance is crowded with too many inefficiencies and bad intent, but as the DeFi is in a development stage, proper caution must be taken and slow adoption should be the key.
Disclaimer: The article is meant for the educational purpose only and in no way it should be considered as financial advice. Own research on the topic is advisable.
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