One of the most important concepts in the financial sector is the concept of trust. An investor and someone who has savings entrust their money to financial institutions such as banks, borrow money, make payments and engage in trading.
He demands that the financial institution trust him. From ancient times to today, this trust is demonstrated by the cooperation of financial institutions with regulations. Today there is a decentralized financial system that is changing financial technologies in general.
Decentralized Finance (DeFi) is now considered the future of the financial market. This model has emerged with various and new technologies such as blockchain technology and cryptocurrencies. The system proves to be a safer alternative model to the rules and algorithms proposed by financial institutions and official bodies.
What is Decentralized Finance?
This financial system called DeFi refers to the digital financial system developed in contrast to the traditional financial system that depends on authority and rules. For example, banks influence the savings that individuals keep in their bank accounts or the dollar investments they make with those savings.
The tax authorities influence many things, such as how this money works, what its value is and how much income it will generate. Decentralized finance works without this decision-making effect, i.e. without the money being tied to an institution or a state.Like any user, you can conduct your financial transactions through banks.
In other words, they use banks for transactions such as deposits, withdrawals, credits, borrowings and the use of credit cards. The consequence of this is of course your dependence on financial authorities and authorities. But today, decentralized finance offers technology that eliminates this dependency. Decentralized finance refers to the financial sector that is used to carry out transactions such as money transfers, investments or loans without depending on authorities.
How does the decentralized financial system work?
The base currency used in the decentralized financial system is of course digital assets, so-called cryptocurrencies. The first example of these digital assets is Bitcoin, which was introduced to the world in 2008 by a mysterious person named Satoshi Nakamoto along with blockchain technology. In the following years, many important cryptocurrencies such as Ethereum, Tether, Litecoin and Ripple were produced. In fact, thousands of cryptocurrencies can be mentioned today.
With DeFi technology, the transfer of funds can be done via the blockchain provided by cryptocurrency projects. It represents the most important and practical example of the decentralized financial structure. However, it is also possible to carry out many different transactions in this financial system.
With this system, which can be used individually over the Internet, the technology and infrastructure of the system can be trusted without having to trust an authority. Because all transactions, investments and savings made using this technology are encrypted and completely dependent on the user.
Many different cryptocurrencies are used in the decentralized financial system. These cryptocurrencies are called DeFi coins in the system. cryptocurrencies known on the market today, namely coin units, as well as token units offered by various projects can be used. With the opportunities offered by the decentralized financial system, investments, trading, payments or loans can be made in these cryptocurrencies.
The crypto assets you have in the system are stored in a wallet. While these coins can be stored encrypted in hardware, called cold wallets, they can also be stored using a cryptographic system in wallets used with an internet connection, called hot wallets. These wallets, which are specifically provided for cryptocurrency owners, can only be accessed by the owner. The wallet owner can transfer his savings into digital investments and businesses by using his wallet anywhere via computer and internet.
How does decentralized finance affect investments?
The fact that the decentralized financial structure offers a very professional and reliable option is causing investors to turn in this direction from the classic investment market. In order to invest in cryptocurrency markets, it is actually necessary to create accounts on cryptocurrency exchanges.
Nowadays there are many different cryptocurrency exchanges that are known all over the world and are widely used in Turkey. To create an account when investing, you must first become a member and then transfer funds to this exchange through a bank account.Decentralized finance does have an impact on investments, but above all it means that banks only make investments in a certain area.
Because in the past, banks were the main source and environment for people who wanted to invest. However, today people who want to transfer money to cryptocurrency exchanges only use banking channels for a single transaction. That’s why, in recent years, banks have started offering you convenient ways to transfer funds to these exchanges to make your cryptocurrency transactions easier.
Since cryptocurrencies are usually based abroad, when investing in these digital assets in Turkey, the investment is indexed to the US dollar or euro exchange rate. However, investors previously used basic investment instruments such as dollars, euros and gold from banks and traditional financial institutions. However, while these instruments rise by a maximum of 10 lines, a dollar-indexed cryptocurrency can rise 100-fold in a matter of hours. Because of this, it attracts more investors and changes their investment style.
How does DeFi impact investors?
Decentralized finance no longer requires people to be tied to a country’s public or private financial institution. In this way, the investor invests his savings in many different investment instruments provided by decentralized financial institutions. While these investment instruments sometimes bring large profits in a very short period of time and sometimes in the long term, sometimes the investment instruments offered by various projects offer significant advantages.
Some technology projects and large systems are involved in decentralized finance, allowing people to invest in them. In this type of campaign, crypto assets called tokens are created for the projects. The investor can support the campaign with the money he invests in these crypto assets. It provides financial opportunities for investments and generates profits if the investment is successful. Today, decentralized finance contributes in this way to the development of technology and investors.
Thanks to decentralized finance, investors can access investment markets and financial opportunities in a very convenient way. In addition, states today have increased security in this market with regulatory technologies. In this way, decentralized financial institutions, which offer many different services offered by banks, allow people to receive financial services more internationally with convenient and fast security technologies. In other words, your money can now be safely stored not only in your country and its institutions, but anywhere in the world.
The future of decentralized finance
In recent years, decentralized finance tools and protocols have created a very high market volume. While this market volume has reached a value of around $10 billion worldwide, developers and existing cryptocurrencies are enjoying increasing popularity. Today, many private companies and public institutions are trying to develop their own decentralized finance applications.
See you in the next post,