![]() These services are now faster, efficient, and open to inspection by anyone as they are on a public ledger, all while allowing complete anonymity. Smart contracts have opened the doors of DeFi and now include services such as loans, insurance, and lending, which allow access to those who may have been denied financial services before due to the presence of a dominant central authority (such as banks or government institutions). This is also in sharp contrast to fiat money, in which governments can manipulate the value of the currency, which may end up hurting your bank account. These contracts allow for anyone to exchange currencies or goods, with no authority allowed to change its rules, as all of them are written by and maintained by the code. These allow a safe and reliable method of transaction processing because every action is carried out by the blockchain instead of a third party, which may be prone to hacking or fraud. What are Smart Contracts?ĭeFi operates on the Ethereum blockchain off of smart contracts, which are specific sets of code that can automatically execute the intended function, such as facilitating and carrying out transactions. Another downside of using centralized exchanges is that transactions take time to process, which can sometimes be detrimental in the volatile world of crypto. However, these platforms may charge high trading fees and might even be unsafe as they are prone to hacking. The world is already familiar with centralized cryptocurrency exchanges such as Binance, Coinbase, Kraken, etc., which help users exchange their fiat currency (like the US dollar, British Pound, and Euro) for a cryptocurrency, the most popular being Bitcoin and Ethereum as they are considered the safest and most stable bets an investor can make. Unlike banks and other financial institutions, which act as middlemen in managing your money, DeFi, or decentralized finance, is an up-and-coming financial technology that can help remove this go-between broker. Understanding What Coins and Tokens Are.
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