Understanding Defi Crypto, Beginners Must Know!

Decentralized finance or DeFi crypto is a system that aims to provide financial services that are open, unauthorized, transparent and accessible to everyone without a centralized authority.

This is made possible by DeFi crypto thanks to the underlying smart contract technology, which allows developers to create much more complex functions than sending or receiving digital currency. DeFi crypto universally replaces any financial service you use. 

Examples include savings, loans, business, and insurance. All you need is a smartphone and connection Internet and everyone in the world can access it. While openly accessible, users still have full control over their assets using decentralized apps or dapps.

Definition of DeFi Crypto

Decentralized finance, or DeFi crypto for short, is an ecosystem of blockchain-based financial applications that can operate without a central authority such as a bank or other financial institution. Currently, almost all financial services including savings, loans, insurance and exchanges are still managed by a centralized system. 

In other words, we must have a bank account or be able to access financial institutions in order to enjoy various financial products and services.

So much so that there are still many people who do not have bank accounts and do not have access to financial services. 

Meanwhile, access to financial services has proven to be able to lift people out of poverty and spur economic growth.

With technological inventions blockchains Bitcoin, people can now transfer crypto assets to other parts of the world without having to have a bank account. 

What if blockchain technology were used to build a variety of decentralized financial services that weren't just limited to sending and receiving digital currency? This is where DeFi development plays an important role.

Advantages of DeFi

The main benefit of having a DeFi crypto ecosystem is the ease of using financial services for everyone. The traditional financial system relies on intermediary institutions such as banks to generate profits.

This means that financial services are not always available to all levels of society, especially low-income people. 

The use of DeFi significantly reduces the cost of using financial services, and ultimately opens the door to financial services for all levels of society to enjoy.

The discovery of DeFi applications basically facilitates the realization of financial inclusion or conditions for everyone to access financial products or services.

This is necessary because financial inclusion has been proven to be able to lift people out of poverty, reduce social inequality, and promote economic growth. 

Also read: Differences between DEX and CEX in the Crypto World

How DeFi Works

The development of various crypto DeFi applications mainly started with the discovery of the Ethereum blockchain using smart contract technology. Smart contract is the term for computer programs written on the blockchain Ethereum.

Smart contracts automatically execute pre-programmed commands to transfer tokens between Ethereum addresses or perform other types of transactions when certain conditions specified in the software are met. 

Also read: 5 Crypto Applications Listed at Bappebti, Perfect for Beginners!

Using smart contract technology, the Ethereum blockchain enables more complex layers of programming, giving developers the freedom to experiment with code and create applications called decentralized applications (DApps). DeFi is basically a DA program focused on decentralizing traditional financial services.