Decentralized finance (DeFi) is quickly gaining popularity in the modern world as the shift from traditional financial systems to peer-to-peer finance enabled by decentralized technologies continues. The truth is, the financial industry has presented some of the best use cases of the unique blockchain technology. Blockchain’s decentralized technology has continuously developed ways to challenge centralized financial systems from crypto trading to online payments.
With the recent development of decentralized finance, the use cases for blockchain technology in finance are increasing by the day. Decentralized finance refers to different blockchain-powered technologies facilitating peer-to-peer financial alternatives to traditional financial services and institutions.
Here are some of the reasons for the uproar about decentralized finance.
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It comes with greater transparency.
The best thing about decentralization is that it comes with greater transparency. Decentralized finance is based on a distributed ledger with data about all the transactions on the blockchain network, which is available to the public for verification.
Moreover, the cryptographic nature of blockchain technology ensures that the information is recorded after verification of its authenticity. For many people, the transparent nature of de-fi is a gamechanger as it enables people to identify potential financial scams early and improve their due diligence.
It has true immutability.
Decentralized technologies are cryptographic and use consensus algorithms like proof of work hence the high level of immutability. That means manipulating records or data on a blockchain network is impossible, creating a level of security that is hard to breach or achieve with traditional systems. The tamper-proof data access across the whole network enhances the needed auditability and security in financial systems.
More interoperability
The blockchain network stack ensures that decentralized finance protocols and apps are created to complement each other. The best part about decentralized finance is that users have the freedom to develop on top of current protocols, integrate third-party apps, and even customize interfaces to the users’ needs. It is easy to see why decentralized finance is gradually taking over the traditional financial systems.
It is permissionless
Decentralized finance is very different from traditional financial systems and institutions. One, it is an open book that defines its permissionless nature. Everyone with a crypto wallet and internet connection can access decentralized finance applications created on the Ethereum network regardless of their location. The permissionless nature of de-fi makes it easier to access and interact with de-fi apps.
Self custody of personal data
Through extensions such as metamask, de-fi enables users to maintain custody of their data and access even as they interact with permissionless financial protocols and applications. This is one of the advantages enticing users towards decentralized finance because the traditional financial systems are permissioned. That opens up new ways for users to manage their savings and even earn interest on the assets.
The bottom line
Decentralized finance promises to bring many benefits to clients and investors, including eliminating intermediaries making financial markets more accessible to everyone. In simple words, decentralized finance brings in the perks of blockchain technology in the financial sector.