Decentralized Finance Versus Traditional Finance

- 17 January 2022 17:00 WIB
Illustration on how a decentralized network functions. (Unsplash/Shubham Dhage) ((Unsplash/Shubham Dhage))
Illustration on how a decentralized network functions. (Unsplash/Shubham Dhage) ((Unsplash/Shubham Dhage))

JAKARTADAILY.ID – In 2020, the cryptosphere exploded with the emergence of DeFi, or decentralized finance. Although Bitcoin has many characteristics similar to DeFi, the exact date when Defi launched is still unclear, except to refer it to Bitcoin's launch in 2009.

After 2017, several new platforms emerged, such as MakerDAO and Compound Finance. As a result, the DeFi niche became more prevalent.

The idea of DeFi differs from how traditional finance functions. For this comparison, the example of traditional finance is commercial banks. You can use them to store your money, borrow money, and make transactions in the conventional world. Banks have their own security method to keep the operation running and free from theft.

On the other hand, traditional banks have control over your assets. They are typically limited by their banking hours and regulations. Also, banks require the customers' personal details and identifying documents for registration.

There are some issues that DeFi addresses. First and foremost, DeFi is a segment of the cryptosphere that enables anyone with an internet connection to carry out transactions without intermediaries. Unlike traditional banking, transactions happen in real-time, and they can be done anywhere.

Bitcoin and other cryptocurrencies have characteristics that are different from traditional financial instruments. Due to its decentralized nature on blockchain technology, transactions are faster, cheaper, and more secure.

DeFi solutions are built on blockchains and are operated through peer-to-peer networks. They do not require any documentation for participation.

DeFi enables people to borrow and lend money, invest in cryptocurrencies, and earn returns through yield farming, all without "middlemen."

A good example of an all-in-one DeFi project is Toko Token, or TKO. TKO is a project from Toko Crypto, an Indonesian crypto startup. TKO offers a hybrid token model. It allows users to trade, deposit, use it for cross-platform DeFi applications and stake it to become validators within the network.

Read More: How To Safely Store Crypto

Editor: Suksmajati Kumara

Source: Investopedia

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