In this modern age of tech-oriented world where cryptocurrencies are emerging with swift speed, DeFi, short for the Decentralized Finance revolution, is reshaping the dimensions of financial infrastructures. DeFi Phenomenon is providing enormous profitable opportunities to investors to get ahead of the curve. It is a broad term referring to numerous platforms and cryptocurrencies developed on blockchain.
The capitalization of DeFi has surged from $686 million to $15.6 billion in just one year. Wide-range of people are running blockchain networks all around the globe. On the flip side, we are unfortunately witnessing an unprecedented level of vulnerability.
There exist no central intermediary or location, which means that members of the network can directly deal with each other.
Let us consider an example:
You pay a visit to a restaurant. You are paying the restaurant directly if you use cash. In case you use a credit or debit card, you are actually paying the institution that backs the card and then the institution pays the restaurant. Obviously, the institution deducts their fees. Contrary to this, if you are paying using cryptocurrencies, the payment is transferred directly over the blockchain network. The member of the network performs the verification process on transactions as opposed to the third-party institutions.
Below are the top 5 DeFi investments and stocks to keep an eye on for the immense blockchain revolution in 2021 and in the forthcoming years.
The DeFi revolution was initiated back when bitcoin was the one and only currency. Now in this modern crypto-oriented world, there exist numerous offerings and all of them can be considered as bitcoin with additional features. Bitcoin deficiencies are one of the main reasons for cryptocurrency emergence. Numerous analysts believe that bitcoin will not be able to survive in the long run. They believe the significant reason that it was created to be the initial place for blockchain and cryptocurrencies.
The biggest issue with bitcoin is the power consumption of network transactions. It is estimated that original blockchain models and bitcoin utilize more power annually than the country of Peru. This is ultimately the result of the mining process. Miners are basically the developers who perform the validation of bitcoin transactions with the help of their computers.
But the problem is developers are required to solve complex problems in order to mine. These require a lot of effort and power. The puzzle becomes more complex with the immense acquisition of bitcoin. This could obstruct the long-term acceptance of bitcoin.
Ethereum got hold of bitcoin’s original blockchain and made some enhancements. Ethereum developed something which is called “smart contracts'' contrary to bitcoin which only utilizes as a method to transfer payments. These smart contracts can be utilized to make payments on the completion of some agreement. For instance, you hire a service provider, you can set up a smart contract and do payments on the complement of the agreement. That contract may specify that payment will be made only when certain services will be provided by the particular date.
Ethereum is already acquired enormously by a wide range of financial infrastructures. For example, JP Morgan and numerous other wall street firms are utilizing them for trade settlement. In addition to the capability of developing contracts, the Ethereum network has numerous other benefits over bitcoin. One of which is it does not require as much power to operate as bitcoin, and it performs transactions more accurately and efficiently in comparison to bitcoin.
U.S. Dollar Index
Weakness in US dollars is one of the reasons why cryptocurrency emergence has evolved late in this world. The U.S. dollar index was trading around 102 levels last year in March. A decline of 12% is observed as it has dropped to a level of almost 90. It adds money to the economy as the government utilizes financial incentives to fight a strong battle against COVID-19. The cash you carry on your regular basis says a promissory note, which is a promise to honor its value by the Federal Reserve. Yet it is not subsidized by actual hard assets.
All of the United States currency was backed by gold or silver that was held somewhere in the vault prior to the US leaving the gold standard in 1971. The federal reserve can create or print all they want as it is not required to be sponsored anymore. But in this way, cryptocurrencies cannot be manipulated and analysts believe that this makes cryptocurrency high and mighty to currencies such as the US dollar.
Digital currency mining involves riot blockchain. Organizations are thriving to design and develop specialized computers that generate bitcoin. Riot shares have escalated much more than bitcoin over the same time span. Shares were trading around $3.30 per share at the end of October. Presently they are trading around $80.
Riot has lost a tremendous amount of money over the past four years. Hence Riot made numerous improvements and strides in just one year to its bitcoin mining business and much more emergence is predictable in 2021. Riot Blockchain claimed that it received and deployed 2500 Bitmain S19 Pro Antminers earlier this month.
Apparently, the shares of Canaan(CAN) are going up today and it is publicly traded crypto-mining-play. The company mainly focuses on developing high-performance computing solutions to come up with the solution of complex mining problems accurately and efficiently. Miners are required to be swift in order to compete in the cryptocurrency market for the collection of high rewards. CAN stocks have soared over the past few months they were trading around $2 in October and currency they just traded above $20. There exists a probability that it is just a bubble. Canaan has lost a lot of money over the past few years and it is estimated that an enormous amount is lost in the upcoming years. It is arduous to see how this company maintains the market cap of $39 billion.
DeFi ignition In the near future
Bringing real-world assets into decentralized finance is an alluring idea. In 2019, insurers exhibit 130,000 fraudulent claims worth £1.32 billion according to the figures provided by ABI.
Undoubtedly, DeFi will ignite in 2021 and in near future in an unpredictable manner. But keeping an eye on such ignition measures to combat fraudulent activities must not be ignored at any cost. Financial infrastructures must integrate themselves with such startups as Shufti Pro that provides a protective shield against illicit money transfers and illegal activities.