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Tim Enneking Explains How Decentralized Finance (DeFi) Works

Decentralized Finance (DeFi)

Financial systems as we know them have been centralized. While you are free to move your money around, all transactions are controlled by central entities like banks and financial institutions.

Tim Enneking explains that decentralized finance seeks to remove this middle entity from transactional processes and thus make for a free market.

What is Decentralized Finance (DeFi) by Tim Enneking

Decentralized finance is pretty much what we know about finance, but without the need for middle men. Shortened to DeFi, it is a vision for how finance would work in the future where financial transactions are carried out freely.

According to Tim Enneking, DeFi allows investors the opportunity to become their own bank, which allows them to lend and get money without the need for intermediaries. This is beneficial because there is no commission cut for these intermediaries, which allows investors to get much higher returns than they’d be able to in the traditional, centralized financial system.

DeFi also allows people to send money around the world freely without having to pay any fees. All this money can be access through digital wallets. Since all of this happens over a blockchain, transactions will most likely be carried out using cryptocurrencies.

Tim Enneking Explains How DeFi Works

The purpose behind DeFi isn’t to change what is happening, but rather how it’s happening. Tim Enneking explains that decentralizing the financial systems will not change your ability to get and give loans, interest payments or how you make payments at all – it will simply use decentralized technology to carry out these same transactions.

DeFi relies on blockchain and smart contracts for operation. Blockchain is something of a ledger, allowing you to store information on all sorts of transactions that take place. It contains all the transactions that ever take place on that blockchain, all recorded in chronological order.

So, if you were to make a payment through a DeFi system, your transaction would be recorded onto the blockchain with a timestamp of exactly when it happened.

The concern around this, according to Tim Enneking, is with security. Most people will naturally worry about how they can be sure their money remains safe if all of it is digital. This is where smart contracts come in.

Smart contracts are programs stored on the blockchain that will only execute once all the necessary conditions are met. This means that if you have to send someone money, the transaction will only be completed once all the required conditions from you and the other person are satisfied.

This way, you can be sure that there is no meddling from third parties and that the computer controls all your transactions. The program is also self-executed, so you don’t have to worry about running it.

DeFi has a number of benefits. For one, it allows for better security and lower costs. People can also earn higher income through decentralized finance. However, the technology is still new and people have yet to fully accept it. One thing is for sure: DeFi is becoming a regular part of the economy, and it’s likely that we will see a lot more of it in the future.