Original Youtube video: https://youtu.be/17QRFlml4pA

Hello again!

In this lesson, I’m going to explain what DeFi is.

DeFi: A shortened way to say “Decentralized Finance“.

This breaks it up into 2 parts: Decentralization and Finance.

Let’s go over the decentralization first:

If you think about how a bank works, it is very centralized. There is one CEO at the top who gets the last say. If he decides to say you owe his bank $1,000… well, there’s not really much stopping him.

You could say “regulations wouldn’t let him do that!”, you are right. But he’s trying to steal $1,000 anyways, so he doesn’t care about regulations. What if he told the regulators that he would split it with them? The point is, you have to trust the bank.

They hold the ledger.

What if there way a way we didn’t have to trust the bank?

There is.

With Bitcoin, when we make a transaction to send some of our Bitcoin, we “sign” it with a message. This message uses our private key to show everyone that we approved it. It is mathematically infeasible that someone else could recreate our “signature” to spend our money.

We’ll talk about how blockchains work in the next email, but for DeFi, you just need to know that your little transaction and your signature showing that you approved it get sent out to EVERYONE with a computer. This way everyone can clearly see that you paid someone money.

With a bank, you can’t see the records. A full master list of financial records is actually called a ‘ledger’. With Bitcoin though, the ledger is 100% public. Everyone can see it. Take a look at some live transactions!

We don’t have to trust that someone keeps track of our accounts, we can prove how much money we own by using math and the fact that EVERYONE has a list of all of our transactions.

No one person holds the ledger.

The power is decentralized.

Next up, Finance.

Using the power of decentralization, we can actually copy EVERY financial tool out there.

• We can send and receive money.
• We can lend money to earn an interest rate.
• We can borrow money.
• We can create insurance contracts.
• We can trade on margin.
• We can create “derivatives” and options trading.
• We can make our own casinos.

With Bitcoin, we can only send and receive Bitcoin. Through the use of “second generation” blockchains, we can use what are called ‘smart contracts’ to basically use code to make programs for our money to follow. I’ll explain these later too, I know it’s a lot to take in if you’re new.

Decentralized Finance has WAY lower fees, I’m talking .001% that of banks.

Decentralized Finance is WAY faster, someone moved $2,000,000,000 in 12 minutes using Bitcoin.

Decentralized Finance doesn’t care who you are. In other words, no ID is required, and a government can’t stop you.

Decentralized Finance gives people freedom with their money.

We don’t even need financial institutions anymore.

Decentralized Finance gives the power from the banks to the people using the tools.

The trust is no longer in a CEO, or President, or an account on 1 computer.

The trust is in the code, and math. Math is never wrong.

Oil and Steel were tools (and made some rich).

The Internet is a tool (and made some rich).

DeFi is the next tool (and will make some rich).

Thanks for reading!

– Theodore