What is a Blockchain? 🤔 ​
Definition ​
A blockchain is a network of computers that work together to maintain a shared, tamper-proof database, often called a ledger. This ledger keeps a permanent and secure record of every transaction made on the network.
For example, in the Ethereum blockchain, you can use websites like Etherscan.io to view all transactions. If Alice sends money to Bob, the transaction is recorded. Instead of showing "Alice" and "Bob," you'll see their public addresses—unique strings of characters like 0xAB12...DEF3. This ensures the system remains:
- Transparent: Anyone can verify transactions.
- Private: Personal identities aren't revealed.
The blockchain’s structure guarantees:
- Security: Data is encrypted and tamper-proof.
- Transparency: Transactions are visible to anyone with access.
- Decentralization: No single entity controls the network; it’s distributed globally across many computers.
This combination of features makes blockchains essential for cryptocurrencies and other innovative applications like smart contracts, voting systems, and supply chain management.
What is Decentralized Finance (DeFi)? ​
Blockchains are the foundation of decentralized finance (DeFi), an alternative to traditional, centralized finance (CeFi). Here’s a comparison:
Centralized Finance (CeFi) ​
- Banks or institutions act as intermediaries to manage your money.
- Requires trust in third parties to process transactions and safeguard assets.
- Offers simplicity and dedicated customer support.
Decentralized Finance (DeFi) ​
- No middlemen—transactions are managed automatically using smart contracts (self-executing code running on the blockchain).
- Open to anyone with an internet connection, enabling global access.
- Provides full transparency and puts users in direct control of their assets.
DeFi empowers individuals to:
- Trade, lend, or borrow without banks.
- Access financial services with lower fees.
- Participate in a global economy without restrictions.
While CeFi remains dominant for its ease of use, DeFi is revolutionizing the way people interact with money, offering greater autonomy and inclusivity.