Decentralized finance and Defi Development, both of which are highly associated with the crypto world, can seem like unfathomably complex topics to the uninitiated. However, after learning the basics of both, you’ll find that you can use them to your advantage much more easily than you think! To get started, let’s take a look at the basics of decentralized finance, what it means for Defi Developers, and why everyone should be interested in both topics.
A decentralized financial system is a novel approach to building a digital money and payments infrastructure. A group of developers have banded together to develop the technology that will underpin this new world. The first step in developing this new infrastructure is building out a protocol that enables smart contracts on different blockchain and networks to interoperate with each other. This interoperability will be vital for the future of decentralized finance, as it will allow multiple communities to participate in the same economy without friction or middlemen.
What is Ethereum?
Ethereum is a decentralized platform that runs smart contracts: applications that run exactly as programmed without any possibility of downtime, censorship, fraud, or third-party interference. These apps run on a custom built blockchain, an enormously powerful shared global infrastructure that can move value around and represent the ownership of property. This enables developers to create markets, store registries of debts or promises, move funds in accordance with instructions given long in the past (like a will or futures contract) and many other things that have not been invented yet, all without a middleman or counterparty risk.
What are Smart Contracts?
Smart contracts are self-executing contracts that are encoded to the blockchain. These smart contracts enable the performance of credible transactions without third parties, and they can be programmed to execute certain actions at a specified time or under certain conditions. Smart contracts are often used in decentralized environments because they do not rely on a Defi Developer or any other intermediaries. They are fully transparent and auditable as well, which means all transactions made with them are recorded on the public blockchain ledger and cannot be altered by anyone, including the contract creator.
What are ERC20 Tokens?
ERC20 is a technical standard that dictates how to write smart contracts on Ethereum blockchain. These smart contracts are tokens, which function like shares in companies. They offer investors the ability to trade them, invest in them, and monitor their market value. ERC20 tokens are built using Ethereum programming language Solidity. To issue an ERC20 token, you must create a contract that acts as a set of rules governing the exchange and transfer of ownership.