Bitcoin

What Is The Difference Between Bitcoin And DeFi 2022?

As the cryptocurrency universe undergoes a transformation, we look at the main differences between bitcoin and decentralized finance (defi).

Cryptocurrencies have been changing the traditional banking system. In fact, recently, during the Indian budget meeting on February 1, 2022, Finance Minister Nirmala Sitharaman proposed a 30 percent tax on income earned from digital assets. While it may seem like a significant amount, the move shows that the country has recognized cryptocurrency as a financial asset that affects the economy. Founder and CEO of cryptocurrency exchange CoinSwitch Ashish Singhal noted: “What this indicates is that [the] government recognizes this industry and hopefully the cryptocurrency bill will also address the legality of this ecosystem.” .

Reading: Defi vs bitcoin

However, it should be noted that the universe of cryptocurrencies is wide and varied. from bitcoin to defi, the multiverse, non-fungible tokens (nfts) and more, there is a lot going on. Here, we break down the main differences between Bitcoin and Defi to help you navigate the virtual financial terrain.

what are bitcoin and defi?

See also: Here&x27s Why I Still Won&x27t Buy Bitcoin, and You Shouldn&x27t, Either | The Motley Fool

While bitcoin is a decentralized cryptocurrency, and the most popular, defi is a concept that covers a variety of financial services. bitcoin is a store of value, just like fiat currency, operating on its own blockchain. Defi, on the other hand, allows you to lend, borrow and trade cryptocurrencies, such as bitcoin, similar to quintessential financial institutions such as banks. defi projects are usually based on the ethereum blockchain, and users can earn interest, take loans, and even pledge their nfts as collateral. On top of that, users can become ‌liquidity providers for decentralized exchanges through defi apps.

the focus of these two entities is to eliminate intermediaries, either to exchange money or take out loans. Usually, there will be intermediaries who allow these activities and charge you money for it. but with its virtual iterations, users can save money and have more control over their “bank account,” which is in the form of a digital wallet. the president of the smart contract platform ava labs, john wu, states that defi-related applications operate “without a central service that exercises control over the entire system.”

how do they work?

Smart contracts are at the heart of defi, as they allow transactions once the “if…then…” condition is met. Bitcoin, by contrast, uses proof-of-concept models such as proof-of-work and proof-of-stake, employing miners to validate transactions. people prefer to use cryptocurrencies as it is the cheapest and easiest way to make international payments. the same goes for defi apps. still, bitcoin has established itself as a leader in crypto, having been around since 2009. defi continues to gain traction as people learn ways to use this institution to deal with more complex financial functions.

the risks involved

See also: 3 Steps to Add Funds to a Bitcoin Wallet

That risks are a must while trading cryptocurrencies is evident as we witness cryptocurrency scams, volatility induced losses and more every day. Whether you decide to use bitcoin or defi, you need to be aware of the challenges. Digital asset company CoinShares Chief Strategy Officer Meltem Demirors shares: “I think every Defi protocol and every Defi project has a different level of risk and a different level of reward. It is important to understand that the reason the reward is high is because the risk is higher. the reason we see high returns is that there is risk here.”

although defi is a newer entry in the world of cryptocurrencies, it is growing at a fast rate. wu warns that this growth could cause people to fall for scams. he says, “defi is growing so fast and the returns are so high that the opportunities may seem too good to be true. when in doubt, trust your intuition or seek out more objective members of the community with the technical expertise to thoroughly review the code.”

Overall, as digital currencies expand, we can virtually expect new interpretations of traditional financial ecosystems. Will the lack of intermediaries make transactions smoother or pave the way for bigger fraud? only time will tell.

header image by unsplash

See also: Judge savages self-proclaimed bitcoin inventor Craig Wright | Ars Technica

Related Articles

Leave a Reply

Your email address will not be published.

Back to top button