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Most people by now have probably heard of Bitcoin and Ethereum (which have been hanging around for years), but 2021 has been the year of DeFi – or decentralized finance.
DeFi does not have a formal definition, but it generally includes the use of blockchain to borrow and lend using auction markets. Part of the chance to make money comes from the fact that blockchain eliminates the need for traditional financial intermediaries, with their fees and associated regulations.
According to Vice, a common trait of many DeFi tokens is that they shamelessly promise investors huge returns. They often rely on complex schematics in an effort to increase their value. For example, SafeMoon, a DeFi token promoted by popular influencers, taxes sellers and distributes a portion of it to holders. Over the past year, people have won big and then lost everything as cryptocurrencies went viral and then crashed.
But that doesn’t stop anyone from trying their hand at getting rich, either by creating their own coins or by stealing the funds. According to CipherTrace’s Crypto Crimes Report from May 2021, $ 156 million has been stolen via DeFi-related hacks so far in 2021.
And as much as the potential excites some people, others are frightened by the notorious volatility. Just look at Elon Musk’s tweets on cryptocurrency, which often push prices up or down. Bitcoin surged on Sunday after announcing that Tesla would resume bitcoin transactions once it confirmed that miners are using reasonable clean energy.
Billionaire investor Mark Cuban recognizes the risks and that there are technicalities to work out with all this technology, but still says “this approach is the future of personal banking.” In a blog post earlier this week, he said “banks should be scared.”
However, Dutch economic officials predicted “the final collapse of the crypto bubble”. They urged the government to immediately ban bitcoin and other cryptocurrencies.
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