What is DeFi and how to protect your cryptocurrencies?
The world changes every day. Today, new alternative types of financial platforms appear. They are based on blockchain and provide their users with a huge number of new abilities while allowing them to avoid the involvement of third parties. This one provides users with more freedom. If you don’t want to depend on centralized structures and protect your digital assets in the most reliable way, read this article.
DeFi means “decentralized finance”. This is a financial infrastructure that includes Ethereum and blockchain applications designed in the decentralized network without mediums. DeFi is based on the blockchain. Initially, blockchain was developed as a technology behind cryptocurrencies. Due to the decentralized system of the blockchain, a history of transactions is accessible for each participant of the blockchain without the mediums. This enhances the level of speed and sophistication of transactions. DeFi extends the use of blockchain from simple transactions transfers to a more sophisticated decentralized system.
As compared to fiat money, while using cryptocurrencies to purchase products and services, you don’t share your personal information with mediators. While using a credit card to purchase a cup of coffee, there is a bank or another financial structure between you and a seller which controls a transaction and records it in its private ledger.
Financial applications are under the control of these financial structures. One of the main purposes of DeFi is to build a transparent decentralized financial system without the control of mediators where all participants are equal.
Usually, decentralized apps are built on one of the largest blockchain platforms Ethereum. The most important advantage of this platform is that it allows building different decentralized apps on this platform due to the smart contracts. They enable validating transactions automatically and provide a network with a high level of flexibility. Anybody can develop their decentralized app on the Ethereum platform using smart contracts.
Let’s consider what the most popular decentralized apps are:
- Decentralized exchanges allow their customers to exchange their costs without any mediums. All the users of the exchange can connect with each other directly. This enhances a level of decentralization and allows users to avoid the involvement of third parties and the control of authorities. This requires a high level of trustworthiness between the participants of the network.
- Lending platforms. They provide customers with lending services without any mediums and based on smart contracts.
- “Wrapped” bitcoins (WBTC). This is a way to pay with BTC for different services inside the Ethereum DeFi network.
- Prediction markets. These are markets where bets are made on the result of future events. The main purpose of these markets is to provide customers with the same functionality as traditional betting markets but without mediums.
Let’s consider some of these DeFi applications in detail.
They are designed to connect borrowers and lenders of digital currencies. For instance, Compound is a decentralized app offering its customers to borrow diverse digital currencies or offer their own loans. Those participants who offer their loans can earn money on this. DeFi lending is based on collateral. Those who take out a loan put up collateral that is an ether or a token that powers Ethereum. This allows users to stay anonymous. This is one of the main benefits of DeFi platforms.
Decentralized prediction markets resemble traditional prediction markets but have some particularities. The users of such apps can also bet on the outcome of future sports events. DeFi is intended to develop this infrastructure since the government controls traditional prediction markets.
Crypto exchanges provide a cryptocurrency market with a high level of liquidity while tracing millions of dollars in trading volume every day. Since this market grows permanently, exchange services continue to scale providing customers with new possibilities.
As compared to traditional exchanges, DEXs are based on smart contracts providing customers with another exchange approach. They allow users to trade peer-to-peer without intermediates.
At the DEXs, each participant can sell or buy digital assets without intermediary organizations due to the smart contracts. This allows avoiding fees charged from customers of exchanges while enabling instant transactions. All these benefits make decentralized crypto exchanges attractive for different groups of traders, including frauds, hackers, scammers, and other dishonest users.
Decentralized crypto exchanges don’t use KYC verification and make their users vulnerable. Therefore, it’s very important to protect your crypto assets while using decentralized crypto exchanges. Let’s consider how to protect your crypto assets and don’t become a victim of fraud.
How to protect your crypto assets on decentralized exchanges?
If you don’t know how to protect your funds, you need to read this article to the end. The best way to protect your digital money is anti-money laundering services allowing you to monitor transactions and check them where they were before. What does it mean “dirty money”? This means that crypto assets were involved in diverse illegal operations. If your money is involved in purchasing services or products from the “dark market”, they automatically become “dirty”. While using “dirty” cryptocurrencies, you will lose your reputation among other crypto traders, companies, etc.
One of the most popular and reliable services protecting your crypto assets from “dirty money” is AMLBot service. It offers the first transaction check for free, easy-to-use interface, high-quality tech support, a high level of protection of your digital assets, and a possibility to check around 1500 different cryptocurrencies.
In conclusion, since DeFi infrastructure is developing day by day and decentralized exchanges based on smart contracts appear to replace traditional exchanges, customers need to learn to protect their cryptocurrencies from fraud. Therefore, the level of popularity of AML services also grows. One of the most reliable and convenient AMl services is AMLBot that helps you protect your crypto assets and makes your crypto trading on decentralized exchanges safe.