When we think of finance, it’s easy to visualize banks, stock markets, and other financial institutions at the center of the system, providing the services that support the global economy.
But what if there was another way? What if finance could be decentralized?
Instead of being at the center of this new decentralized system, crypto tokens could be used as a means of exchange within it, allowing people to trade goods and services peer-to-peer without going through centralized institutions.
If you want to know more about what decentralized finance entails and how it works, keep reading.
What is decentralized finance?
It’s important to understand that there are several key differences between decentralized finance and centralized finance.
In centralized finance, there’s always one central authority determining which transactions are valid, who owns what assets, and how things are recorded.
With decentralized finance, on the other hand, these processes-known as smart contracts-are governed by a series of protocols and predetermined rules.
The good news is that you don’t need to understand complex blockchain-based programming languages like Solidity to implement these features.
You can use tools like Metamask to simplify end-users (i.e., non-coders) to interact with your DApp.
The rise of non-fungible tokens (NFTs)
With their roots in cryptocurrencies like Bitcoin, NFTs differ from fungible tokens. In short, an NFT represents something unique-like artwork or work of authorship-that cannot be exchanged for another identical item.
An easy way to understand non-fungible tokens is by considering collectibles like baseball cards or art.
Each one of these has value and distinct attributes; if you want to purchase Mickey Mantle’s rookie card, you can’t just swap it for someone else’s.
The same concept applies to NFTs: They represent a single individual that cannot be replaced with another unit.
Key concepts related to digital assets
Two different types of digital assets are (i) cryptocurrencies and (ii) digital tokens. Cryptocurrencies use cryptography, proof of space-time to secure transactions, while tokens serve as a representation of an asset or utility.
As these technologies mature, new models for exchanging value are emerging on decentralized platforms that do not rely on third parties to ensure trust and enforcement.
Using smart contracts, decentralized exchanges can also operate with automatic guarantees that transactions will occur as per terms specified in an agreement.
Some benefits include no counterparty risk, improved price efficiency due to reduced spreads, automated price discovery mechanisms from transparent transaction histories, and open-source code enforceable by all participants in lieu of agreements between individuals or companies-known as legally binding smart contracts.
So how are we building our new economy?
Over five years, several startup companies began offering crypto mining services and encouraging customers to contribute their computers’ processing power to help them generate cryptocurrency.
As more and more people started mining and liquidity mining, these newcomers boosted the computational power available on blockchain networks and increased transaction speeds.
This approach helped drive down transaction costs while also raising environmental concerns: many countries have introduced or considered introducing legislation to regulate crypto mining as part of broader efforts to cut greenhouse gas emissions.
In order for cryptocurrencies to be used widely in daily life, they will need to make it easier for users to protect their digital assets from cyberattacks and other threats while maintaining control over them at all times.
This means using decentralized finance (DeFi) tools that give individuals ownership of their own funds without relying on third parties.
In addition, DeFi platforms can use non-fungible tokens (NFTs) – tokens that are unique rather than interchangeable – to create new asset classes and enable transactions between peers without intermediaries.
Progress
Many decentralized applications have launched their own tokens. It’s crucial to understand what these tokens are, why they’re needed, and how they will contribute to value creation.
This requires an understanding of platforms like Ethereum, EOS, Snow Crash and TRON. These platforms are unique in that they make it possible for new smart contracts (also known as decentralized applications or DApps) to be deployed without owning computing power yourself.
The business model of crypto mining has become profitable enough that cloud services like Amazon Web Services now offer specialized cryptocurrency mining infrastructure as a service.
