Introduction to Smart Contracts – Decentralized Finance (DeFi)

More startups and project owners have been speculating about smart contract development for their productivity. If you want to be part of a successful party, no one can stop you from doing it. But you won’t be able to take a big leap unless you inform yourself about it from the beginning.

Here is where the introduction of smart contracts enters the equation.

To define smart contracts, there are dozens of terms you can find online. But to make it much simpler, a smart contract is simply a program that runs on the blockchain. Its main function is to execute a particular action when certain conditions are met. So, if the requirements are not fulfilled, the smart contract may not take an action or take other actions to enforce the involved parties to fulfil the requirements.

In most common cases, smart contracts are run on the Ethereum blockchain. The Ethereum platform is an open-source blockchain that provides ample security, interoperability, and speed. For those reasons, many projects rely on a particular blockchain to complete their processes.

The smart contracts are not controlled by the end-users. They are the creation of smart contract development. The developers would deploy it to the network and run it as programmed. The user accounts can interact with the smart contract to a certain extent.

Smart contracts effectively enforce the regulations and rules in a particular contract. All of the executions and tasssss are done automatically. The interactions between the users and the smart contract are irreversible.

The existence of the smart contract removes the intermediaries. That leads us to the DeFi topic. The existence of the smart contract is critical in decentralized finance platforms because it replaces the jobs of intermediaries. So, instead of using human intermediaries to administer all of the financial services, smart contracts will do it. The process is accurate and automatic, so it can achieve better results than human intermediaries.

Why Does DeFi Matter?

Smart contract development is DeFi’s fuel. Why does it matter, anyway?

Banking, as we know it, has been a regular third party for a long time. The bank is a common party that we know that we can rely on for our financial future.

We might consider ourselves lucky that we have had access to the bank’s financial services and other centralized services. But we might be surprised that a lot of unbanked populations have total control over their assets and can derive benefits from this form of freedom.

A fintech company recently showed their finding, claiming that the world’s unbanked population has contributed around $250 billion to the global GDP.

Lack of financial services from the centralized system is a huge issue for developing countries. But a lot of people in these huge countries are also unbanked.

Let’s take an easy example. People who have bad credit cannot apply for their educational installations. It is important to underline that not all “bad credit” people are bad people. Some of them have their own reasons. Some of them are just having bad luck. Here is what DeFi can offer them. Without looking at their bad credit, backgrounds, races, ethnicity, regions, or other variables, DeFi platforms welcome everyone who wants to reserve their assets for good.

DeFi matters not only in the sense of centralized system disruption but also the real solutions for all people across the globe.

How Does DeFi Work?

DeFi stands for “Decentralized Finance.” As the name suggests, it does not involve an intermediary like in the centralized system to process all the services. DeFi is an integral part of Finance 3.0.

In order to access DeFi, users will only need to reserve a seed phrase. A “Seed phrase” is a single password set that is the sole credential for the user to use Dapps and other DeFi services. The smart contract development has highlighted the importance of the seed phrase for all of the DeFi users.

The users will use the usual web browser to access the net. It is easy to access the DeFi platform from current devices and facilities. But there is a different thing in Finance 3.0. Instead of using fiat currency, the users will need to reserve cryptocurrencies like Bitcoin or Stablecoins. Non-custodial facilities will take the helmet in place of banks and other centralized systems to provide financial protocols to Finance 3.0 users.

Decentralized exchanges like Uniswap and Balancer have gained significant recognition from time to time.

What Is DeFi’s Role?

So, what does DeFi do exactly? How can it be significant to recent industries?

Although the solid establishment of the DeFi movement started in 2018, the first era was actually in the same timeline as the rising popularity of Bitcoin.

The Bitcoin blockchain has been effective in allowing peer-to-peer transactions of digital assets.

The second wave was ignited by Ethereum. Its powerful and secure, citizenship-resistant architecture has quickly gained a solid position in many industries.

And then, the third wave is the ICO trends that started in early 2017. The ICO had been slated as the most effective way to finance a wide array of projects. The term “ICO” is more relevant to the DeFi and cryptocurrency topics, which are part of Finance 3.0.

DeFi itself is a part of Finance 3.0, and it came as the fourth wave. DeFi is the creation that combines all of those technologies. With DeFi, every user has an equal opportunity to control their non-sovereign digital assets. They are not bound by banks or other types of intermediaries.

Get Started in DeFi

To adopt DeFi in your project, you will need to get familiar with top networks like BSC-Binance Smart Chain, Ethereum, or others. There are many options out there to pick from when it comes to the DeFi platforms. Before using services on DeFi, it is important to choose a particular network.

Most popular networks are accessible through wallet extensions like MetaMask, Trust Wallet, and others.

These wallets allow users to use their funds directly through their browsers or compatible devices.

To avoid pitfalls, it is best to work with a trustworthy and experienced software company.

Reach out to your professionals now for inquiries or questions.