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Investing in Crypto? First You Need to Understand DeFi

Decentralized finance (DeF) might very well be the financial system of the future. Cryptocurrency transactions are a part of a decentralized financial system based on blockchain. This is why you should make sure to understand DeFi before getting into crypto.

Anyone interested in the world of crypto needs to understand what decentralized finance (DeFi) is all about. Decentralized finance is a new financial system that poses as the opposite of traditional centralized finance. There are no banks or financial companies that serve as third parties. This also means that there are no transaction fees – but also that no central regulatory institutions are stabilizing the market. Here we will give a brief introduction to cryptocurrency. If you are still wondering about what is DeFi? afterward, you should head to cryptomeister to have an even more thorough introduction to the coin. Here a complete guide will take you through all its features. But for now, let’s have a brief look at it right here.

A new future of finance

Decentralized finance could in many ways be the financial system of the future. It’s decentralized and democratic in a revolutionary way. It is safer in many ways since it’s eliminating any third parties. These digital transactions are direct from peer to peer. These digital transactions can be digital assets or physical assets. All kinds of digital assets that aren’t money are being sold here – today it’s not unheard of to buy a digital dress.

The infrastructure is evolving as are the regulations. It takes digital transactions to a completely new level through a highly elevated combination of software and hardware. It is still evolving and advancing, but everything points to decentralized finance being here to stay.

How does it work?

Many think of cryptocurrencies when they hear the word blockchain. But blockchain is much more than cryptocurrencies. Amongst other things, it is the technology that decentralized finance uses. Basically, a blockchain is a secured and distributed ledger or database. D’apps (decentralized applications) are used to run the blockchain and perform transactions.

Every transaction is recorded as a block and verified by other users on the blockchain. The block will be (if verified) encrypted and sealed in the blockchain. From here, the next block that is created will store information about the first one. This makes all the blocks chained together (hence the name). This is also what makes blockchain such a secure way to store information – you can’t change the information in a block without having to change all other blocks. This is why it is such a great tool for safe transactions in the system of decentralized finance.

What can it be used for?

DeFi can be used for any transaction between two peers. Any type of transaction such as a purchase or a loan can safely proceed through DeFi. The system is defined by its security and transparency. It’s cheaper because there are low or no fees. It’s highly accessible – all you need is an internet connection and a computer or device.

It doesn’t rely on any third parties which eliminates the risk of corruption or bankruptcy. When you know how the system of decentralized finance works, you know the system on which cryptocurrencies are based. Even though the system of DeFi is a safe construction, this doesn’t take away the volatility of cryptocurrencies that also comes with the concept of decentralization. Cryptocurrencies are only worth as much as the market dictates since there are no central institutions to regulate them.