By**: Alex Reyes**
Last modified**: 12/10/20**
DeFi is an emerging and fast growing category of apps built on crypto. This learning resource will provide an overview of and provide the reader a basic understanding of what it is and why it matters.
Since the dawn of Bitcoin people have been excited about the potential for using the currency as the basis for a new financial system. Much like how the internet revolutionized, well, everything, Bitcoin enthusiasts believe that cryptocurrency could create a more fair, equitable, and global financial system built from the ground up. Part of this belief came from the nature of Bitcoin. Nobody owns Bitcoin, not a central bank or a government. It's decentralized.
But, the modern story of financial systems built on crypto doesn't revolve around Bitcoin anymore. One of Bitcoin's competitors, Ethereum, is being used as the basic monetary and programmable layer for this new financial system.
Ethereum is the second-largest cryptocurrency by market cap, lagging behind only Bitcoin. The appeal of Ethereum is it makes it simple compared to Bitcoin to write code that can move money. This type of program is called a smart contract. The idea behind smart contracts is to make "code as law". Once you deploy the smart contract code on the Ethereum blockchain, it's there forever.
Apps built on Ethereum using smart contracts are called dApps. A dApp is a decentralized app. The thing that makes is decentralized is that it uses Ethereum, which is a decentralized network. Examples for dApps range from Cryptokitties (collectible cats on the blockchain) to games and financial apps.
Decentralization is very important to crypto enthusiasts because they believe a decentralized network is inherently better because it's not owned by a single person or entity.
DeFi is a movement that has sprung up around the Ethereum cryptocurrency. The name itself is short for decentralized finance, which was coined due to its goal of building a new financial system on top of Ethereum. DeFi apps are just dApps (decentralized apps) used for finance. DeFi is the category of apps built on Ethereum for making a new (better) financial system built on top of cryptocurrency.