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Why is “Decentralized Finance” important?
DeFi puts the power of finance back into the hands of ordinary people. Instead of being forced to use banks and other centralized institutions, customers can hold onto—and invest their own money directly and securely.
In essence, DeFi means that you own your own money and have access to a new universe of ways to invest it. By increasing industry competition, DeFi also empowers independent developers and entrepreneurs to provide better banking and investing solutions for everyone.
In addition to providing revolutionary new products and services, DeFi also forces traditional financial (TradFi) institutions to up their game and provide better services to their customers.
What are oracles?
Blockchain oracles are services that connect blockchain smart contracts to real-world data. Since blockchains are typically closed systems, they rely on additional layers of infrastructure to acquire and ingest data. Most smart contracts need outside, real-world data to operate, such as the current price of cryptocurrency for an exchange contract, or the outcome of a certain real event for a betting platform.
Blockchain oracles can be either centralized or decentralized. Centralized oracles are controlled by a single entity and generally rely on a single data source for their information. In contrast, decentralized oracles use multiple, independent data sources that do not coordinate with each other. This can be ideal for smart contracts that need faster, more accurate data.
What are smart contracts?
A smart contract is a computer program stored on a blockchain. Smart contracts automatically execute commands when specific conditions are met. Common smart contracts include agreements between buyers and sellers to swap tokens or to execute legal contracts.
Smart contracts can also send cryptocurrency to a certain address when a certain real-world event occurs, such as in the case of blockchain or DeFi insurance for hacking or weather events.
Smart contracts form the core of blockchain and DeFi applications, as no human intervention is needed to execute the contract after both parties agree to it. This creates “trustlessness” since you do not need to trust a third-party to execute a transaction, only the quality of the smart contract itself. Smart contracts cannot be changed once they are created, which helps avoid manipulation by bad actors.
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