With the progressive development of the Internet, new opportunities are also emerging all the time. Especially in recent years, a lot has happened in the financial sector. With the introduction of Bitcoin, not only did the first cryptocurrency see the light of day, but a new era of digital finance also began. Since the emergence of the crypto world, several new technologies have developed. The world of decentralised finance offers its users more and more possibilities.
But despite the growing awareness, many still confuse the terms crypto and DeFi, or use them both in the same way. In this article, we will explain to you what exactly the difference is between the two and how the future of crypto and DeFi is shaping up.
What is crypto?
The term crypto is mostly associated with cryptocurrencies. These are in turn digital currencies. Just like normal money, you can buy and trade with them – but just digitally. The special thing about cryptocurrencies is that they are not controlled by central institutions such as banks and governments. The best-known cryptocurrencies include Bitcoin, Ethereum and Litecoin.
One of the biggest differences to DeFi is the way it is used to earn money. When trading cryptocurrencies, you try to predict price changes of different cryptocurrencies and invest or withdraw money in them accordingly. Of course, this also involves a great risk, because such predictions can turn out to be wrong.
What is DeFi?
Decentralised finance – DeFi for short – describes the mapping of classic financial processes in the crypto world. So, while cryptocurrencies only represent a kind of digital asset, DeFi can map entire financial processes. The whole principle is based on blockchain technology and smart contracts. Just like cryptocurrencies, DeFi is also decentralised, so it is not controlled by central authorities. For example, transactions, loans and more can be carried out digitally, decentrally and independently.
What advantages does it bring?
The shift of finance to the decentralised crypto world has many advantages, which are probably also the reason for the strong upswing in recent years. First of all, DeFi is open to all. There are no access restrictions – anyone with an internet-enabled device can get started. Moreover, it is not bound to opening hours. Anyone can access it 24 hours a day, seven days a week. Many also appreciate the high degree of personal responsibility in keeping one’s money, independent of financial institutions.
But besides these obvious advantages, there are also completely new financial services that were not possible before. DeFi convinces with a very high transparency of transactions through the underlying blockchain. In addition, costs can be saved that would otherwise flow into financial institutions or advisors. By using smart contracts, only the two contracting parties themselves are needed to create and fulfil a contract, but no third party. And last but not least, the new technology opens up completely new investment opportunities to earn money.
What disadvantages does it bring?
But as many advantages as DeFi and crypto have, there are of course a few disadvantages to consider. Because the whole technology is still very new, the risks are still difficult to assess. The new possibilities still need to be observed and investigated further. In addition, a so-called wallet and cryptocurrencies are needed for investments. Although it is not very complicated to set up or buy these, many people still hesitate to use this new type of money and trade. Investments in cryptocurrencies are also always associated with a risk due to the strong fluctuations in value.
Will crypto and DeFi continue to gain ground?
Especially in recent years, more and more people have discovered the advantages of DeFi and entered the business. And with good reason, because this new type of finance and trade has a lot of potential. Currently, not even nearly all of these possibilities have been exhausted. Despite its growing popularity, DeFi is still in its infancy. However, it can already be said with a fairly high degree of certainty that it will no longer be able to get out of the market. Whether it will even replace classic central financial services at some point remains to be seen at this point.
Conclusion
So, while crypto mainly refers to cryptocurrencies that serve as a digital asset, DeFi offers the possibility of handling entire financial processes online and decentralised. These new technologies offer many advantages, but there are also a few disadvantages. Nevertheless, it is advisable to keep an eye on the development, because the whole area has great potential. So, if you don’t want to miss the right moment to get started, you should get to know these topics early on.If you want to learn more about cryptocurrencies and decentralized finance, visit the Teach me DeFi online course.
But as many advantages as DeFi and crypto have, there are of course a few disadvantages to consider. Because the whole technology is still very new, the risks are still difficult to assess. The new possibilities still need to be observed and investigated further. In addition, a so-called wallet and cryptocurrencies are needed for investments. Although it is not very complicated to set up or buy these, many people still hesitate to use this new type of money and trade. Investments in cryptocurrencies are also always associated with a risk due to the strong fluctuations in value.
