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Why DeFi for Finance is important and on the rise

Finance is a broad field that encompasses the creation, management, and investment of money and various financial assets. Traditionally, these financial services have been provided by centralized institutions like banks, securities firms, and fund managers. These institutions hold custody of customer funds, act as intermediaries for transactions, and are heavily regulated. However, this centralized model has limitations – customers have little privacy and must place significant trust in these institutions to operate securely and transparently.

The emergence of blockchain technology, starting with the release of the Bitcoin white paper in 2008, has ushered in a new era of decentralized finance (DeFi). Public blockchains and distributed ledger technology have enabled individuals to take self-custody of digital assets for the first time. The development of Ethereum in 2014 as a smart contract platform further expanded the capabilities of DeFi, allowing for open, programmable financial applications to be built on public blockchain infrastructure.

To determine if a financial application is truly decentralized, it can be evaluated across three key aspects: custody and settlement, transaction execution, and protocol governance. The more decentralized these aspects are, the more the application can be considered true DeFi, rather than a hybrid centralized-decentralized model. This shift towards decentralized finance has the potential to transform the way financial services are provided, with increased user control, transparency, and interoperability.

Tag Archive for: Bitcoin