DeFi stands for Decentralized Finance, which includes decentralized applications (dApps) and services developed on permissionless blockchain systems using smart contracts.
“A smart contract is a self-executing contract with the terms of the agreement between buyer and seller being directly written into lines of code. The code and agreements exist across a distributed, decentralized blockchain network. As a result, the code controls the execution, and transactions are trackable and irreversible.” (https://www.investopedia.com/terms/s/smart-contracts.asp)
The innovation carried forward by smart contracts, and the entire DeFi ecosystem is the interaction among multiple parties without a centralized intermediary or a central authority like banks and institutions, solving the trust problem and reducing the risk of human error. More automation, more security.
The financial system we know today went through decades of technological advances, starting with the introduction of accounting machines and punched cards, the rise of the mainframe computers, and the invention of ATMs and credit cards. Then, in the 1990s, thanks to the growing internet adoption, there was the so-called fintech revolution, with essential characters such as Paypal, Robinhood, Transferwise, and Revolut.
Today, the traditional finance concept is changed thanks to the development of blockchain technology, P2P (peer-to-peer) protocols, and the entire crypto industry.
History of DeFi
No official date can underline the birth of DeFi, but the Bitcoin protocol created by Satoshi Nakamoto in 2009 is its milestone.
This P2P protocol enables decentralized payments worldwide, but its language, called Script, has been limited to creating a wide range of decentralized applications or systems on this chain. With this aim, in 2015, Vitalik Buterin created Ethereum. With its Turing-complete programming language Solidity and the ERC20 standard for creating new tokens, it quickly became a go-to smart contract platform to build on.