DeFi is really f*cking scary. But it’s the fastest growing industry in the world. You do not want to fall behind the 8 ball. Read this 4 minute page to stay ahead of the curve:
A Quick Definition
DeFi (aka decentralized finance) aims to be today’s financial system with code replacing institutions.
*It won’t completely replace traditional finance. But, many aspects of it will be disrupted.
In DeFi, blockchains (and smart contracts) replace the financial institution as the middleman who guarantees a transaction will happen (ex: a loan will be paid). Smart contracts are public for anyone to inspect and audit, keeping users accountable from writing bad contracts.
Basically, a blockchain is a bunch of computers that work together to reliably update the history of transactions. Check out these explanations for a more in-depth explanation:
Bitcoin Under The Hood: How Does It Actually Work?
A holistic explanation of the technology behind Bitcoin. Made for beginners. Welcome to Illini Blockchain's first blog post! Illini Blockchain is a curiosity-driven club whose mission is to learn about and get involved in the blockchain ecosystem. We also want to bring others along for the ride!
In short, smart contracts are blocks of code that follow instructions and can’t be changed.
Now let’s tie it all together with an analogy:
- The blockchain – establishes a common truth & is the backbone to everything else
- The assets – like $ in today’s economy it incentivizes, facilitates, & connects everything
- The smart contracts– code that provides functionality & does the behind-the-scenes work
- The applications – the finished products that users interact with
What’s the difference between DeFi & TradFi?
(source: Ethereum Foundation)