Decentralized finance (DeFi)
Have you ever imagined a global alternative to financial services you use today?
We think that not a lot of people haven’t heard about decentralized finance and even know exactly what it means.
How does DeFi work? Will the new technology replace the common financial system? Answer to these questions and more you will find in today’s article.
Decentralized finance explained
Decentralized finance (DeFi) or Open Finance is a new financial system based on distributed ledgers. The system removes control financial institutions have on money. The main purpose of DeFi is to eliminate all third-party involvement in financial transactions.
How does DeFi work?
The Open Finance system is based on blockchain technology, which is also used in cryptocurrencies. Transactions are recorded in blocks and then other users validate them. If all agree on a transaction, the block closes and encodes. After it, a new block, containing information from the previous one, is created. Blockchain system makes DeFi completely secure, as there is no method to edit an information, since it was already saved and encrypted.
Which currency does DeFi use?
DeFi intends to conduct transactions using cryptocurrency. Stable coin, a cryptocurrency backed by an entity or tied to a fiat currency like the dollar, is the core of the concept.
So, Decentralized finance abolishes intermediaries and allows people to conduct financial transactions through up-to-date technology. You can do any financial operations, lend, trade, and borrow using DeFi software from anywhere, you just need to have an internet connection. System records and validates financial transactions in distributed financial databases, which are completely safe and reserved.
Hope you enjoyed reading our article!
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