What is the difference between DeFi and cryptocurrency?

What is the difference between decentralized finance and cryptocurrency? DEFI focuses on building decentralized applications, making it easier for people to use their money without relying on third parties, and cryptocurrencies are committed to creating a new digital currency form that can be used for online transactions. The functions of the two are different. Let's take a closer look at it.

What is DeFi?

Defi applications aim to use cryptocurrencies to rebuild traditional financial systems, such as banks and exchanges. Most of them are running on the Ethereum blockchain.

The difference is that the DEFI application "runs without the central service to control the entire system."

Through DEFI borrowing, users can borrow cryptocurrencies like traditional banks to borrow legal currencies and earn interest as loans. Borrowing is one of the most common use cases of DEFI applications, but there are many increasingly complicated choices, such as becoming a decentralized exchange liquidity provider.

Interest rates are usually more attractive than traditional banks, and compared with traditional systems, the borrowing threshold is lower. In most cases, the only requirement for obtaining Defi loans is mortgage that can provide other encrypted assets. Users can sometimes provide their NFT or irreplaceable tokens as mortgages, for example, depending on the DEFI protocol used.

However, these factors have also contributed to more risks than traditional banks.

What are Bitcoin and DeFi?

Although Bitcoin is a decentralized cryptocurrency -also the most popular cryptocurrency -but DEFI is a concept of a series of financial services. Bitcoin is a value storage, just like a legal currency, running on its own blockchain. On the other hand, DeFi allows you to borrow cryptocurrencies such as borrowing and trading Bitcoin, similar to typical financial institutions such as banks. The DeFi project is usually based on the Ethereum blockchain. Users can earn interest, loans, and even NFT as mortgages. In addition, users can also become the liquidity provider of decentralized exchanges through DEFI applications.

The focus of these two entities is to eliminate middlemen, whether they exchange currencies or loans. Generally, intermediaries will support these activities and charge you. But through their virtual iteration, users can save money and better control their "bank accounts" that appear in the form of digital wallets. The operation of DEFI -related applications "does not control the entire system without central services."

How do they work?

Smart contracts are the core of Defi, because once they meet the "if ... then ..." conditions, they can be traded. Instead, Bitcoin uses concept proof models, such as workload certificates and equity proof, hire miners to verify the transaction. People prefer to use cryptocurrencies because it is cheaper and easier to participate in international payment. The same is true of DEFI applications. Nevertheless, since 2009, Bitcoin has established its position as a cryptocurrency leader. As people understand how to use the agency to deal with more complex financial functions, Defi is still motivated.

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What makes Bitcoin and DeFi different?

The difference between Bitcoin and DeFi is best to explain the analogy of emails and the Internet.

When the Internet was first released to the public, what it allowed was only email. People can use this ultra -fast technology to communicate with each other, and they think this is the whole significance of the Internet.

But in the next few years, with the development and dissemination of Internet technology, everyone realized that it was not limited to emails, but a brand -new world with countless possibilities.

Similarly, when the blockchain world is about Bitcoin, it is great. People like it. It allows them to earn anonymous funds in P2P (individual) transfer. But in less than ten years, we discovered the real potential of this technology.

The use of blockchain to make payment faster and cheaper is not just a feature. This is a complete system that you can do anything in it, including money. It liberated individuals from banks and financial institutions.

What do you bind Bitcoin and DeFi together?

The underlying technical blockchain combines Bitcoin and DEFI. Although there are all differences, it is necessary not to regard Bitcoin as completely different from DEFI. In fact, we should see it as an important part of the larger decentralized financial world.

People cannot use the real -world funds to perform all the amazing operations that DEFI allows them to perform. Because the use of banknotes or legal currencies, such as US dollars or euros, involves banks and centralized organizations, it directly violates the principles of DEFI. This makes Bitcoin and other cryptocurrencies (a digital storage of value) can play a role in governing currencies in the DEFI world.

What is DeFi in cryptocurrencies?

In short, DeFi represents a trend or movement that promotes the infrastructure and open source software driven by blockchain to create various financial services and products, including traditional financial services and products. You can consider loans, transactions, currency issuance, payment, insurance, off -site transactions (OTC) transactions, pledge, financial data, asset management and other services. To visualize it, DeFi is to transform traditional banking services into decentralized architecture. In this way, the community can manage them instead of banks, governments or regulators.

DeFi is currently a strong trend, similar to the boom of initial token issuance (ICO) at the end of 2017. The new ecosystem revolves around financial applications developed on the blockchain network. The decentralized application (DAPPS) integrates a secure network without permission, no trust, and eliminating the central authority of management services.

DeFi project

At present, most DeFi projects depend on Ethereum. This is a public blockchain that provides an open network with smart functions such as smart contracts. The latter is a key function that supports DAPP development. Smart contract is a blockchain code that can be automatically executed and settled when meeting the predetermined conditions. In this way, intermediaries such as banks and regulators do not need to handle sales, transactions and other transactions involving both parties or parties.

What is the difference between decentralized finance and cryptocurrency? DeFi and cryptocurrencies are different technologies, but both may completely change our way of interacting with the world. DeFi focuses on building decentralized applications, making it easier for people to use their funds without relying on third parties, and cryptocurrencies are designed to create a new type of digital currency that can be used for online transactions.

What is the difference between DeFi and cryptocurrency?