Hello, dear friends hope you are all doing well and enjoying this season of the Steemit engagement Challamge. We are in week 2 of season 4. Today I choose a homework task set by Cryptoacademy which is about Centralised and Decentralised finance. Let's begin :

Explain in your own words the Defi world Why is it important? Let's talk about it.

The traditional financial system that is used throughout the world is a centralised financial system. There is a hierarchy of institutions from top to bottom that is entitled to control different parameters of finance. So centralised finance involves intermediaries in the form of institutions and their controlling authority. To put it simply, let's take an example of my country (INDIA). We have the Reserve Bank of India (RBI) and its head known as the Governor of RBI as an absolute authority to control every decision related to finance. All the rules and regulations are formulated by the said institution and they are bound upon all the individuals of the country irrespective of their will.

Decentralised finance refers to an alternate system and a viable solution to centralised finance in which every individual represents an autonomous entity to control their funds according to their own rules. There is no centralised authority to make rules and regulations. Every individual user is independent and has every right to make use of their funds according to their own will.

Centralised finance operates through banks, internet banking, ATMs, Credit and debit cards etc all of which must abide by definite rules and regulations to operate. Decentralised finance operates on a decentralised public ledger known as blockchain through Defi applications (dApps ). It is a peer-to-peer system that's immune to temporal (time) and spatial (geographic) limitations.

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Importance of Defi.

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The importance of Defi lies in its ability to provide all the facilities as that of a centralised financial system and that too with enhanced security, and transparency and without any centralised control. Besides being secure and transparent, the Defi ecosystem can be operated by anyone at any time just by a single click on the internet.

Defi is a Peer-to-peer system that is operated through smart contracts on the blockchain. All the features inherent to blockchain are conferred to the Defi and offered to users in their beds within their homes.

To emphasise the importance of a decentralized financial ecosystem let's take a practical use case and highlight the importance.

Use Case

Suppose someone from your family or friends staying in some other country needs money within half hour for some urgent work ( say medical emergency). As part of your responsibility and because of sympathy, you have no option other than sending money. Two case scenarios are possible in such cases. One is that you have internet access you can transfer from your mobile. The second option is that you have to visit a bank to transfer money.

In the first case, let's say you use Google Pay (a global system nowadays ) to transfer the requisite sum of money to your friend or family member. That's the best and easiest possible method. Suppose you made a transaction and your transaction was declined but your funds were debited. The centralised system has an option to enquire about your transaction from customer care which is not there in Defi. When you make a call and you are likely to get a response that the funds will be refunded within 48 hours and sorry for the inconvenience. What about the recipient on the other side who will be waiting for funds?

The second case scenario is that you do not have access to online banking and you prefer to visit the branch and make a transaction from there. Let's look at the odds that you will have to face. In this case, you can make transactions on working days and working hours only. Secondly, your bank server must be working. Third, for international transactions, you must fulfil all the banking rules. Fourth, you have to pay heavy transaction fees. Fifth, you need to wait for your turn as banks are not adequately staffed and people have to wait in queues. Sixth, fill out the form at the bank. Last but not least issue is that international transactions may take hours to happen.

Let's try to do the same through the Defi ecosystem. If you are well versed with the Defi all you need to do is to get a deposition address just like a bank account, Log in to your Defi exchange and send funds in real-time while you are at your home or your car or in the office. There is no time limit or other odds as pointed out.

Defi Vs Centralized Finance. Advantages and disadvantages, let's talk about them.

Every new technology that is incorporated offers advantages over the existing set up and as we explore we come up with shortcomings too. Defi offers some versatile advantages over Cefi but has some shortcomings too.

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Advantages of Decentralised finance

• There is no central institution or authority to frame rules and regulations. Defi is an autonomous system where every user has absolute authority to control or use his funds as per their own needs.

• Defi system is much more secure than Ceci because the former involves the use of blockchain technology which secures every transaction through cryptographic codes.

• Defi is much more transparent than Cefi because the transactions are verified before recording and cannot be edited after recording. Moreover, the transactions are distributed across the public ledger and accessible to everyone for verification.

• It is a global and P2P system which involves the transfer of funds throughout the globe with a single click.

• Global transactions are performed with a nominal transaction fee and are instantaneous.

• Quality of service provided through Defi is of a very high standard and is available anytime and anywhere. As Defi transaction involves blockchain system which is the combination of scores of nodes that offers an advantage of 24 X7 operation because all servers can't be down at a time. So there is no server down issues.

Disadvantages of Decentralised Finance

• Realisation of Defi without mentioning BTC would be sheer injustice to this system. The operations of BTC on the blockchain is based on the Proof of Work (PoW) algorithm which consumes a lot of energy and has been criticized widely for the same. Moreover, some environmentalists have also raised the issue of the generation of carbon particles from the hardware used for BTC mining which leads to the pollution of the environment. Last not the last point to highlight is the high cost of hardware needed.

• ANONYMOUS nature of transactions makes Defi vulnerable to some illegal activities like the use of Cryptocurrencies for the purchase of drugs, ammunition and child trafficking etc.

• Non-repudiable nature of transactions makes it impossible to recover or claims funds in case transactions are made to the wrong address.

• Volatility of the cryptocurrencies makes it unpalatable for those who don't have sound technical knowledge. However, it is because of volatility that people are making huge profits out of cryptos.

• Being decentralised and out of government control, Defi is yet to have mass adoption because of some scary remarks made by governments from time to time Adoption is also hampered because it is a technicality demanding subject and is yet to persuade the masses.

Advantages of Centralised Finance

• Centralised Financial systems need to verify the identity of the individual and are under the control of the central authority. In case of any issue, one can directly contact the authorities and get the issues resolved.

• Record of every transaction made is crystal clear to the authorities so there is no risk of abuse potential or if there is some misuse by malicious elements, they can be easily tracked and action can be initiated against them.

• There are nominal charges levied upon customers by the authorities for maintaining their financial accounts.

• Cefi involves stable currencies so there is no loss due to volatility. Funds kept in a saving account cannot decrease in amount instead they can yield profit as the smart swap is available nowadays which profits users through interest generation. Purchasing power or loss due to inflation is a separate issue.

• Cefi demands much fewer technicalities than Defi and has therefore mass adoption and there is no hesitation by anyone in adoption.

Disadvantages of Centralised Finance

• The absolute control is vested by a central authority and users are bound to abide by the rules and regulations laid down by them.

• Cefi is less secure when compared to decentralized finance because manipulation of data is possible in a centralised financial system. Moreover, the operating system that is put in use in Cefi is not as strong as blockchain. Cefi involves the storage of data either manually or on computers that can be corrupted with much more ease than blockchain.

• Cefi is less transparent because data is not available for independent verification by anyone other than the centralised authorities and is therefore vulnerable to manipulation as well.

• Cefi has set many checks and balances for global transactions and is, therefore, time-consuming. Moreover, heavy transaction charges are imposed on global transactions. There are preset limits which hamper large-scale businesses.

• Cefi is not as effective in delivering services as Defi because the former is operated through a centralised system where server-down issues are very common.

• Cefi systems are operated through financial institutions that operate for limited hours and therefore are less effective than Defi which can be run anytime and anywhere.

• Cefi transactions take hours to get completed especially when transactions are inter-bank and inter-state or transcontinental.

Have you used decentralized Exchange? Tell your experience and explain a Decentralized Exchange. Show screenshots.

Yes, I have used two decentralised exchanges in past and they are UNISWAP and Pancakeswap. My experience with Dex is not as good as with Cex. I found Dex difficult to operate and feature-deprived. The multitude of activities that can be performed on CeX can't be performed on Dex. The low liquidity of Dex can't be denied.

For this task, let's briefly discuss UNISWAP.

^{UNISWAP linked to my coinbase wallet}

UNISWAP is a decentralized cryptocurrencies exchanges that is functional for about a half-decade. It is built on the Ethereum blockchain and therefore supports ERC20 compatible tokens and requires ERC20 Wallet to operate the UNISWAP. Three points that must be kept in mind in the context of UNISWAP are its decentralised nature, absence of an order book and open-source nature. So let me tell you what these three features mean.

Being a decentralised exchange, there is no central authority to have control over your funds. You have absolute control and you are the only owner of your funds. The order book system of matching orders is absent . The order book is present on the centralised exchanges where buy and sell orders are recorded along with their price on the order book of the exchange that's visible to all the users. UNISWAP works through smart contract triggered orders known as Automated Market Protocol which involves the pooling of funds to generate liquidity and incentivise liquidity providers. Being an open source means that UNISWAP source code can be used by developers easily.

One more point to be kept in mind is the price determination mechanism of UNISWAP. We know that centralised exchange determines the price of tokens based on supply-demand dynamics but on decentralized exchanges like UNISWAP token price is determined based on a mathematical algorithm according to which the multiplicative price of the pair has to remain constant. Suppose we have to deposit two tokens A & B, it must follow the equation AxB = constant.

UNISWAP just like most of the centralised exchanges has a native token called UNI that confers voting rights to the token holders. UNI token holders can vote on decisions like fee changes or other amendments to the exchange. In a way, we can say that UNI empowers token holders.

Give us your opinion about the future of Defi

It won't be an exaggeration to say that Defi is the future of finance. Because of the secure and sound underlying technology on which Defi run all the features of blockchain are inherited to Defi. Moreover, the diverse use cases of Defi beyond cryptocurrencies like taxation and income tax etc also expand the horizon of Defi and would foster adoption. Being a permissionless P2P system, its security, transparency and scalability are some of the contributing factors that play role in strengthening the future of Defi.