What is decentralised finance (DeFi) and how is it different from traditional finance?
I must start by thanking @vlemon and @culgin for this opportunity to bring a contest on such an important topic today. I invite everyone to participate, it is not necessary to be an expert, neither am I, but I guarantee that just by checking the page defiprime.com you will get a good idea of what this is about, and you will agree with me that it is a contextualised topic that concerns us all.
The question for participation is:
What is DeFi and how is it different from traditional finance?
It seems logical to me, in order to establish a difference with what we consider traditional finances, to start by defining them, don't you think?, so let's have a simple concept and let's have some examples as well:
”Finance is defined as the management of money and includes activities such as investing, borrowing, lending, budgeting, saving, and forecasting. There are three main types of finance: personal, corporate, and public/government.” Fuente
To make it simple to understand. Traditional finance is represented by the way our money has been managed for decades, that is through centralized banks, in which we deposit our money and they take care of "guarding it", that is why they charge us, also for making transactions they charge us. The truth is that this money is used by them for other projects, they practically use our money (and everyone else's) to make more money from loans, investments, etc. I am sure that if everyone in the bank decides to take out their money completely, these institutions would not be able to give everyone what they have on deposit. Besides, they could not serve everyone, because even though the bank network is quite large, there is not enough room for everyone. In fact, there is a large percentage of the world's population that does not have access to these banks.
Is that clear? I hope so.
But with the advent of blockchain technology and crypto-currency, all this traditional finance has been coupled with this new technology that gives us some characteristics that traditional finance does not enjoy, let's start with the following, a point very important:
As I said earlier, banks as we know them today are centralised institutions, this on the one hand can make for optimal functioning in terms of decision-making, of course, but the reality is that it is not just that, but that it is to meet a growing demand, which is global and the banking and financial infrastructure as we know it is totally insufficient.
With the use of the blockchain this obstacle is overcome, since it is now evident that it is a global technology that is scalable and this is improving every day allowing up to hundreds of thousands of transactions per day to be carried out, at a really low cost or even without cost, very quickly, and without space limits.
This already makes a big difference between both, don't you think?
This platform is an example of this, we are not charged for the transfers and they can be made from one wallet to another in a matter of seconds. And the best thing: Without any intermediary.
Something very important that together with the Ethereum Blockchain came up was the INTELLIGENT CONTRACT. This eliminates once and for all the need of an intermediary, since it is a Software that is programmed to be executed only when the conditions previously established are met, that is why it is intelligent, programmed, the possibilities of error are very few, almost none.
This makes it possible to create many applications and protocols based on this technology, of which there are already many. <If you want to know a little more about Smart Contracts I invite you to visit this publication that I titled Do you have any idea what a Smart Contract is? that I made about this topic.
Having clarified the previous points, which I consider very necessary to understand what the main point of this post is, now if we define it as DeFi.
"DeFi is the abbreviation of decentralized finance that includes digital assets, protocols, intelligent contracts and dApps built in blockchain. We can think of DeFi as an open financial ecosystem where various financial tools and services can be built in a decentralized way. " Source
In this way, intermediaries are left behind and the interaction is directly with the platform. Just like in Hive, where we can, without the need of anyone, make the transactions we want to make. Take the power away from those centralized institutions and facilitate processes, losing less on the way with interests, commissions, fees, among other things.
The reality is that there are already tools to manage assets, analysis services, KYC (Know Your Customer) among many other things. An impressive number of platforms of this type, in the context of DeFi that offer the same services we have in traditional finance, such as loans. But as previously said, without intermediaries, in a public blockchain, where it is not possible to modify what is registered in it.
In short, everything is profit in this new type of finance, at least as far as I'm concerned.
I hope I've been clear enough and left a good view on it.
Thank you so much for the opportunity @vlemon and @culgin to present this contest to everyone. Here I leave the link, I invite you to participate in this community contest Defi Campus
I invite you to visit Project.hope and learn about the benefits of this project for all those interested in growing while helping others to grow.