DeFi: Blockchain’s Latest Revolution
It is the year 2020 and the entire world is currently in the midst of a global pandemic caused by a virus known as Covid-19. So far, the virus has globally infected and killed over 3 million and 230,000 individuals, respectively, and has brought the world to a screeching halt — in turn, economic deterioration to both strong and weaker countries alike. Governments are scrambling to keep their nation’s companies and residents afloat, namely by printing excessive amounts of money — and it may still not be enough to help them weather the storm.
But let’s rewind just a bit. Over 11 years ago, when Satoshi Nakamoto created the first Bitcoin block, known as the Genesis Block, the first peer-to-peer electronic cash system was launched. This block contained a very cryptic message with a very obvious meaning: “The Times 03/Jan/2009 Chancellor on brink of second bailout for banks”. Bitcoin was created as a response to the centralized financial system and all of the issues that come along with it. The Great Recession merely exposed this system’s frailties — and Covid-19 is doing just the same. The global economy is based on centralized financial systems, of which individuals do not have control over their own money — banks and other entities do, and they’re often held unaccountable and lack transparency. Satoshi Nakamoto opened the world’s eyes to the possibility of a new system and made way for a novel idea — DeFi, short for Decentralized Finance.
Although Bitcoin and other cryptocurrencies offer a way to conduct peer-to-peer trading without the need for intermediaries, this does not mean it has found a way to decentralize the current financial system — it has mainly addressed currency issuance and storage. While currency is the first layer, necessary for the existence of DeFi, DeFi is Layer 2 — it seeks to build a decentralized financial ecosystem in which your digital currency can interact. DeFi seeks to replace our current centralized financial system with a new one, that includes digital asset management, smart contracts, protocols and decentralized apps (dApps), all of which are built on the blockchain. Because it is built using blockchain technology, DeFi will give individuals complete control over their assets. Decentralized networks and open source software are at the heart of DeFi — this means they are built on a transparent and trustless framework — they do not require middlemen.
DeFi has already shown strong progress with projects tackling monetary banking services, peer-to-peer lending, among countless other financial instruments. The Lightning Network, which is a Layer 2 payment protocol, operates on the blockchain and allows for individuals to conduct transactions amongst themselves. Then there’s Dharma, a self-proclaimed cryptobank that allows individuals to deposit and withdraw stablecoins, and generate interest through a borrower and lender network which is completely decentralized.
Although we are only at the beginning, there are dozens of other promising projects in the DeFi space that are set to influence financial services across the globe. You can expect to see many other innovative financial services tools surfacing that will understand how to implement blockchain technology to make banking, borrowing and investing simpler, cheaper and faster.
At Blockchain Collective, we believe this cutting edge technology will completely disrupt all industries as we know it — especially financial services. Interested in implementing blockchain solutions to your company? We can help you build from the ground up with the world’s best blockchain developers, system architects, consultants, product and project managers, and much more. Learn more on our website and keep in touch via Twitter.