DeFi vs Crypto: What's the difference?
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Introduction
What we’ve been noticing
Blockchain, the technology that makes both decentralised finance (DeFi) and cryptocurrency or crypto possible, has come a long way since Bitcoin, the most well-known cryptocurrency, was first introduced in 2009. The two terms, DeFi and crypto, have been commonly used side by side so much that many people think both are the same thing. But no, they are different from one another. The main goal of this article is to highlight the differences between the two, as well as providing you with an understanding of both. We’ll look at the key differences between DeFi and crypto, and explore why each has its own unique benefits.
Let’s look at the most important factors differentiating DeFi from crypto, and how the use of these technologies can help us move towards financial freedom.
Key Topics this Article will Cover:
DeFi vs Crypto: What's the difference?
Impact of DeFi and crypto on the global financial system
What are the risks involved?
Conclusion: Our verdict. Is it worth getting involved?
DeFi vs Crypto: What's the difference?
Crypto or cryptocurrency, is a type of digital or virtual currency that uses cryptography for security and is decentralised, meaning it is not controlled by a central authority such as a bank or government. Cryptocurrency received its name because it uses encryption to verify transactions. This means advanced coding is involved in storing and transmitting cryptocurrency data between wallets and to public ledgers called blockchain.The first cryptocurrency was Bitcoin, as mentioned above, it was first introduced in 2009. Bitcoin is not only the first but is the most well-known cryptocurrency to this day, but there are many others such as Ethereum, Ripple, and Litecoin.
DeFi, short for decentralised finance, is a broader concept that encompasses a wide range of financial applications built on blockchain technology. These applications can include lending, borrowing, insurance, trading, payment services, and more. DeFi applications can be built on various blockchain platforms and can include the use of various types of digital assets, including cryptocurrencies. Bitcoin for example, can be used as collateral or a store of value in some DeFi applications, but DeFi is not limited to just Bitcoin and can include other digital assets, such as other tokens and cryptocurrencies. DeFi aims to provide the same financial services as traditional finance, but in a decentralised and open manner, using smart contracts and other blockchain technologies.
Read our article, “DeFi Explained: A Beginner's Guide to Understanding and Getting Started”, to learn more about DeFi.
In summary, cryptocurrency is one type of digital asset that can be used in DeFi, but DeFi is not limited to just cryptocurrency and encompasses a wide range of financial applications that can be built on blockchain technology. Despite all their differences, it is necessary not to think of crypto as something entirely different from DeFi. In fact, we should think of it as an essential component of the bigger decentralised financial world.
Watch the video below to learn more about the difference between DeFi and crypto on a technical level. Don’t forget to like and subscribe so you don’t miss out on important updates and our newly uploaded videos.
What else did you miss?
Impact of DeFi and crypto on the global financial system
What are the risks involved?
Conclusion: Our verdict. Is it worth getting involved?
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Lisa JY Tan | Founder and Managing Director
E: Lisa.T@EconomicsDesign.com | W: EconomicsDesign.com