The Beginners Guide to DeFi

June 29, 2021
aiden@cryptocluster.app
The Beginner's Guide to DeFi

The world of cryptocurrency has been moving fast and decentralized finance is a part of it. One of the excellent points about this new movement is the way technology and programmers are showing us a better way to deal with money. Instead of using a system that at times is designed to fail, it is now possible to be involved with a better, more user-friendly one.

The Beginner's Guide to a superior monetary system

For those who ever been denied a loan, had to travel across town just to sign a paper, or jump through other "hoops" for a bank, there is a new alternative. Decentralized finance saves time and prevents having to deal with stuffy bankers. Not only that, it is safer to use your own money when it is protected by encryption. Your debit or credit card is not encrypted. If stolen, the magnetic stripe can be read by the thief if they have the right equipment. Even the newer cards with a chip can be read by "threat actors" depending on the protocols of the bank issuing the card. In a recent study, four out of ten could be broken and read, even with a chip in the card. The good news is that encryption itself can not be broken. No thief can break it. It is just math, and no thief in the world can break math. This is the basic idea behind cryptocurrency and this new system called decentralized finance. All you need is an internet connection, your software, and your money. No bankers are needed.

There is no central point of failure

Decentralized finance is many times abbreviated to "DeFi". Unlike its older counterpart, the banking system of yesteryear, there are no "bank branches" and no "central offices" to deal with or have to go to. The world of crypto has done away with having to go down to the bank and verify your identity to get loans, start an account, or end an account or any of these related matters. Your keys verify you to the world in this new world of finance. The financial information is contained in computers around the world but your keys make your information available only to you. Crypto is named as such because of the math (cryptography) that secures it. In cryptography, two keys can "open" various things (such as files) on each side of the digital connection. Only those who have those digital keys have authorization to open the file. This secure connection is what protects crypto transactions. Even though the financial information is distributed in computers around the world, unauthorized persons can not see what is not theirs. Moreover, one node on the system can replenish the entire system if it should ever go down.

There is no central point of authority

One of the nice things to learn in this beginner's guide is that there are no bosses. With traditional banking, small groups control the issuance and value of the monetary system. But that same small group is able to print up billions or trillions of fiat money. This causes inflation and the buying power for each user of that monetary system goes down. This central banking problem does not exist in the realm of crypto. From the outset, most cryptocurrencies are designed to have no central point of authority or issuance. In the case of Bitcoin, there will only be 21 million issued. Inflation will be kept at bay for those who use Bitcoin or other crypto coins.

Bitcoin and other crypto coins enter the world via mining. Miners in many countries are fulfilling the decentralized dream and are being rewarded for their work. There is no boss over them. There is no small group to cause inflation. The miners give the users of decentralized finance a voice in the value of their own monetary system. There is no need to seek permission to get a loan in the world of DeFi. There is no headquarters and no bank manager to please. The users decide the value of their money and therefore of their own lives.

Better financial instruments are being created in decentralized finance

Decentralized exchanges have sprouted up in the world of crypto. Mining pools allow those who own cryptocurrency or tokens to lend out their money in a pool and receive a reward. It is very similar to being a loan manager in a bank. These things also exist in the traditional banking system, but only give meager returns. For instance, some are reporting that they are receiving 100 percent returns on their money in crypto. Saving accounts have been created in the crypto world that have an 18 to 19 percent return. There is nothing like this in the traditional banking system. About the most that an old-world bank will provide is three percent. It will still be hard to find a bank that performs at this low level. It makes much more sense to let money work at 18 percent than at three.

How to get started

No beginner's guide is complete without explaining how to begin the adventure into the world of decentralized finance. One of the best ways to become a member of the first adopters is to get a digital wallet. A crypto coin wallet. There are many, so due diligence is needed to select the right one for yourself. Bitcoin wallets are varied. Some will download the entire blockchain and others will not. The Electrum wallet is a popular Bitcoin wallet that does not need to download the entire blockchain. It is also more secure than some traditional wallets because it uses a "seed phrase" to protect the money of the user. The seed phrase is a 12-word mnemonic seed that is used to generate the wallet's private keys. The phrase can also restore the Electrum wallet if there are any problems in the future. For those interested in Ethereum, it has various wallets to choose from as well. For people who want to use their bank card to buy crypto, some wallets will allow exchanging US dollars for Ethereum right in the wallet itself.

Putting the safety of your money first

Cool wallets that allow a user to receive funds from their debit or credit cards are nice. This does not mean they are safe. Since those who use crypto are also responsible for where it resides, it is smart to take a look at secure wallets. Some recommended secure wallets are the Ledger Nano X, Safepal, Cobo Vault, and the Trezor Model T. If you want a safer place to store your Bitcoin for long periods of time, these are the wallets to have. Some, like the Ledger Nano X, allow the crypto user to store more coins than just Bitcoin. Litecoin, Ethererum, Ripple, NEO, and ERC20 tokens can be kept inside this particular wallet. The Cobo Vault is among the more secure of the wallets mentioned. It is a military-grade wallet with no USB ports. There are no wireless connections. It uses QR (quick response) codes to accomplish its crypto storage jobs and supports Bitcoin and other crypto coins.

Freedom to use your money as you see fit

If you believe the best person to manage your money is you, cryptocurrencies are right up your alley. The internet has not only become the information highway, but also the method of transfer of wealth. Making it work for millions is the obvious objective and those who take part will enjoy the unprecedented freedom that new crypto adopters are already enjoying today. Getting off on the right foot in your new DeFi life is important to have a safe and prosperous journey.

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DISCLAIMER:

There is no guarantee of performance with tokens of this nature and as such they can be extremely volatile. The value of your token can go up as well as down. MOONCLONE is a concept which is still in it’s incubation stage and has many regulatory and operational uncertainties which may affect it’s power to deliver its objectives. Please only purchase if you understand the risks. DYOR
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