The firsts of crypto coins; Bitcoin, Ethereum, Litecoin etc. Coins such as, are the kind of digital assets that can be given as an example for DeFi.
One of the main features of Bitcoin and other cryptocurrencies is that they are not tied to a central authority and are easily accessible from all over the world. It would be wrong to say that crypto currencies, whose transfer transactions are faster and more reliable, can be shown as an example of the DeFi system, but they fully meet. Because DeFi covers many areas such as borrowing, lending, decentralized exchange, insurance, shopping, and marketplace. So in essence, traditional financial transactions can be considered as a decentralization project using the Blockhain system.
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What is the Purpose of DeFi (Decentralized Finance)?
Even though the fact that cryptocurrencies sit at the center of our lives brings many discussions, they can definitely be the key to financial freedom when used correctly. Transfer transactions made in Bitcoin, Ethereum or other cryptocurrencies are both faster than traditional banking transactions, and transactions can be carried out with more favorable commission rates. This affects the people who know and adopt cryptocurrencies to use crypto money instead of the traditional banking system for both their investments and transfer transactions.
The DeFi system is actually not different from what we have described above. So the working principle is the same. However, the point where DeFi differs from cryptocurrencies is that the system includes not only cryptocurrencies but also traditional banking transactions. In other words, if we come to the world in the summary of the matter, it is a system established with the aim of facilitating financial transactions and providing access to the banking system of 1.7 billion people who cannot reach the banking systems worldwide.
What is the Origin of DeFi?
The main reason for the emergence of crypto currencies is the creation of a more liberal financial system. DeFi has been implemented as a similar but more comprehensive system. The reason for the emergence of DeFi is by combining traditional coins used around the world with Blockhain technology; to provide more transparent, more liberal and faster transactions. In this respect, it should be said that DeFi projects are more suitable for today’s conditions, although they are very adorned with Bitcoin and other cryptocurrencies. 10-15 years from now, how does people view cryptocurrencies, but traditional tools are accepted by people and even accepted as a must in life.
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Banking systems are places that are protected against physical interventions and where all kinds of measures are taken. However, in order for banking systems to work, online transactions are needed. At this point, it would be absolutely out of place to argue that there is enough trust in banking. This is one of the goals of DeFi projects. It is to combine traditional banking with the Blockhain system and consequently to provide a more reliable and more transparent financial freedom.
What is the Difference of DeFi (Decentralized Finance)?
Although the banking system is widely used around the world, it is not possible to say that the trust in the system is fully present. Because in traditional banking, third parties may intervene. There are many insecurity issues such as the knowledge of a person’s assets by an authoritarian system and the recording of the transactions. The difference of DeFi (Decentralized Finance) projects also arises here. DeFi makes transactions more reliable by enabling people who do not trust banking systems to perform their banking transactions through the system, not by an authority. It allows it to be done through a certain algorithm with millions of devices in the DeFi network. This eliminated the intervention of a central authority in DeFi systems.
What are the Advantages of DeFi (Decentralized Finance) System?
The DeFi system has many advantages for users. Especially after the 2008 crisis, which is one of the biggest economic crises of recent times, people have increased their prejudices against traditional banking systems and started to seek a new search. The emergence of Bitcoin has managed to complete this deficiency, albeit partially. However, because Bitcoin only works as a cryptocurrency, it could not be a complete alternative to traditional banking transactions. The DeFi system, on the other hand, laid the groundwork for traditional banking transactions to hide transactions made using the Blockhain system. Apart from this, other advantages of DeFi (Decentralized Finance) are as follows;
- It enabled more people to use the money-based banking system.
- It was effective in the formation of free exchanges,
- It made it easier to borrow and borrow money between users.
- It enabled new projects to enter the cryptocurrency world and fund these projects.
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What are the Disadvantages of DeFi (Decentralized Finance)?
In fact, it is necessary to admit that DeFi, which can be seriously effective in performing traditional banking transactions safely, is unfortunately at the beginning of the road, so it is not yet a fully accepted system. Although it aims to reach around 1.7 billion people who are aiming to reach every part of the world and who cannot use the banking system, the fact that everyone does not accept it yet delays the achievement of this goal.
The project put forward by DeFi is a very useful and useful system. However, in order to collect all this data together, it must have a sufficient infrastructure that DeFi does not yet have an infrastructure sufficient for this.
