With the technological advancement around the globe, constant transformations can be witnessed in different economic sectors, be it IT, communications, trade and commerce and even the banking systems. In this article, we are going through light on the transformation taking place in the financial services and banking system.
Wondering how?
Well, by eliminating the requirement of traditional centralised financial institutions, a more open, secure and trustworthy financial system, the concept of decentralised finance has been gaining popularity in the past few years. For those who are little new to this idea of decentralised finance, it enables the reduction of online frauds, corruption or mismanagement of people’s assets. Moreover, it makes management of one’s finances very easy, convenient as well as cost-effective.
But, this is not it, in order to understand what decentralised finance is, how it works and does it hold the ability to transform the conventional centralised financial system. Hold on tight and put on your specs to understand the idea of DeFi!
The Concept of Decentralised Finance:
The term DeFi or Decentralised Finance is defined as a financial system that works without the need of any intermediary bodies such as a brokerage firm, bank or brokers as well. Yes, we as users are used to accessing the financial service through the medium of banks or any other financial institutions but, the idea of DeFi creates a system that has the feature to work on its own. Having said this, DeFi has garnered attention due to the easy online transaction it enables but for those who are unaware it also allows the users to handle many financial applications such as insurances, investing, borrowing, exchanging and lending in a more efficient and transparent way. In short it has disrupted the banking and finance sector!
How Does The Concept of Decentralized Finance Work?
Contrary to the popular and cliche centralised financial system, the DeFi technology makes the use of open-source protocols that get developed with the public blockchains. These open-source protocols present on the public blockchains work as the framework or backbone for decentralised finance. In addition to this, there are two main components that let the financial system work and they are, the need of an infrastructure to operate on and a currency to operate with. On one hand, there is a centralized system where the banks and financial institutions act as that infrastructure or backbone and the fiat money like Rupees or US Dollars acts as currency but the decentralized finance replaces these components so as to offer a full range of financial services. Let us understand these two components deeper:
Infrastructure
At present, Ethereum is the platform used for writing or coding decentralized programs. It helps to create smart contracts that are automated in nature and can be used to manage all kinds of financial services. The smart contracts let you establish a set of rules for working or operating f a financial service and then deploy those rules to the Ethereum platform. Please remember, once the rules get deployed they cannot be altered. Clients can construct decentralized applications on Ethereum to set up any financial service, and allow smart contracts to manage those services independently.
Currency
So as to create a trustworthy and secure decentralized financial system the users require stable currency. This is because a secure digital currency such as Emocoin matches its value with a fiat currency and lets the user access the features of decentralised finance.
Advantages of Decentralised Finance:
1) It enables decentralized borrowing and lending: You can easily secure a loan through the use of decentralized finance. The best is is the timing wherein you only minute to the loaning services and you do not need to undergo a complicated application process for the same. At the same time, it enables peer-to-peer borrowing and lending as well. It automatically connects lenders with borrowers making loan management easier through the use of smart contracts.
2) Decentralized exchange: Furthermore, the decentralized exchange allows you to buy, sell, as well as trade-in cryptocurrencies. Yet again you do not need to go through an exchange operator without the requirement of ID verification as well as the fees for withdrawal of funds. Unlike the centralised exchanges, the decentralised exchanges do not require any initial deposit and are guided by smart contracts.
3) Decentralized insurance: The smart contracts that form the basis of a decentralized finance system enables peer-to-peer and decentralized insurance as well. Through the decentralized financial system, you can connect it with any user around the world without ever having to go through an agent. All the process happens autonomously through the smart contracts ensuring a secure, fair as well as trustworthy process.
How to Get Involved with DeFi
If you are interested to use the concept of DeFi and want to try your hands on a decentralised economy then here are a few ways to get started:
- Get a crypto wallet
- Trade into digital assets.
- Register yourself on emobank.digital
Yes, by starting using Emocoin you can easily become a part of a decentralised economy and begin accessing the features of DeFi right away.
