Why is Decentralised Finance (DeFi) Powerful?
Decentralised finance is for finance, what the internet was for information.
DeFi is short for Decentralised Finance and it refers to the financial services in the blockchain and cryptocurrency industry.
DeFi services that are currently offered include opening accounts, loaning and borrowing money, earning interest in savings, betting markets, lotteries, art and other collectible markets, payments, and more.
The DeFi industry is growing and expanding very quickly as more users and investment capital stream into the market.
Decentralized finance is to finance what the internet was to information. What does that mean?
Before the internet, information was supplied (and controlled) by big institutions like media agencies, universities, and governments. The internet changed everything by allowing anyone to create/share information, post it online, and make it available for anyone in the world to access. The internet shifted the control of information from people and institutions to software that can be accessed by anyone who wants to create, share or learn.
The internet revolution has made the world an infinitely better place by creating resources for anyone to learn anything they want, spread information that helps hold governments, companies, and people accountable, and allow people to create businesses and earn livelihoods in new ways. The internet made information permissionless so that anyone can access and benefit from it.
Before DeFi, the financial system was completely controlled by big institutions like governments and banks. DeFi is changing everything by shifting the control of access to financial services from institutions to software. Instead of relying on a human being, DeFi services can verify a user’s financial situation (through their information on the blockchain) using software and that verification can allow access and activity in the DeFi financial services.
DeFi removes the subjectivity, inefficiency, and human error of the existing system, which relies on people, and replaces it with software. This is incredibly powerful and exciting.
So what does this all mean in practice?
The efficiency created by this decentralised software benefits users and the platforms which provide these DeFi services.
Instead of being at the mercy of the procedures and decisions of banks and other financial institutions, users of DeFi services can open accounts, loan/borrow money, earn real interest, and much more. It is amazing that users can do all of this in minutes and the processes are transparent and efficient.
For example, imagine you have some Ether (the native cryptocurrency of the Ethereum network), and you want to pay for something. Instead of selling or using your Ether for the payment, you can transact with a DeFi lending service and receive money as a loan by locking in your Ether as collateral.
You don’t need to complete paperwork or wait for approval. If you can put up the collateral, the software allows you to transact. This is why decentralisation is powerful. It shifts the power to people like you and me, regular members of the public.
The power of this software is also tremendous for businesses. The DeFi business model, with its reliance on decentralised software, enables us to build the most efficient companies we’ve ever seen. Companies with less than 50 people can compete with gigantic, legacy financial institutions which have hundreds or thousands of employees.
DeFi is shifting the world, and the potential is enormous. The future is bright, and I am excited!
PS: I recently started a podcast called The Blockchain Starting Line podcast.
Crypto and blockchain can be complicated so on this podcast, we explain everything that you need to know about crypto.
It can be found on most podcast players. Here are a couple of links:
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