Blockchain-Defi, DAO, and NFT
Decentralized finance (DeFi) is an emerging blockchain technology that makes blockchain calculations faster by implementing distributed ledgers. Decentralized finance also means clients no longer have to go to banks or ATMs to transact their finances. Another advantage of decentralized finance is that customers avoid paying banking and other transaction fees. By the end of the 2021 financial year, decentralized finance had been used for assets totaling over $100 billion. The technology has become popular as it can also be used for taking and issuing loans. Ethereum, the cryptocurrency, has implemented distributed finance to establish the Ethereum coin. Decentralized finance can also be used for global trade, especially for selling online web design and hosting services. Decentralized finance can also help advance a cashless society where users can transact as long as they can access an internet-enabled device. Reduction of theft can also be enforced using decentralized finance since it is easier to steal cash as opposed to digital currency. Digital currency, the leading money in decentralized finance, is easier to track and create reports since transaction data is recorded in blockchains (Salami, 2020).
Decentralized autonomous organization DAO is also called DAC (decentralized independent corporation). This computer system is controlled by an organization for financial purposes. The rules governing the computer system and functions are agreed upon by the organization and programmed into the computer software. The system is privately controlled and cannot be influenced by the government to qualify as a DAO or DAC. The system is used as a financial record to track transactions. The cyber security strength of the DAO is, however, dependent on the organization’s measures taken to secure their system. The most popular use of decentralized autonomous corporations was the DAO, which was hacked and lost $50 million in cryptocurrency. The finances were returned, but it exposed the weaknesses and flaws of the system (Wang et al., 2019). Decentralized autonomous organization (DAO) can be used for record-keeping and providing reports. Any transaction within the system can always be viewed on the previous chain and the following chain, meaning to hack the system successfully and not leave a trace. The hacker must change every record on the system.
A Non-Fungible token NFT, on the other hand, is a piece of data that contains data on a blockchain transaction that can be traded for money but not interchanged. NFTs can be copied and replicated, and ownership rights are unclear. The system is new and still catching up, but it has been implemented for various cryptocurrencies such as Bitcoin. NFTs can also be used for any original piece of data ranging from digital artwork to video content. The actual digital data is signed with an identification that can always be identified as the original but can always be copied, which makes it challenging to monetize digital art through NFTs. Many potential customers are faced with the challenge of understanding why they should buy a piece of digital art when they can copy or screenshot the same image at no cost (Wang, Wang & Chen, 2021).
Salami, I. (2020). Decentralized Finance: The Case for a Holistic Approach to Regulating the Crypto Industry. Salami, I.(2020) ‘Decentralised Finance: The Case for a Holistic Approach to Regulating the Crypto Industry’ Journal of International Banking and Financial Law, 35(7), 496-499.
Wang, Q., Li, R., Wang, Q., & Chen, S. (2021). Non-fungible token (NFT): Overview, evaluation, opportunities and challenges. arXiv preprint arXiv:2105.07447.
Wang, S., Ding, W., Li, J., Yuan, Y., Ouyang, L., & Wang, F. Y. (2019). Decentralized autonomous organizations: concept, model, and applications. IEEE Transactions on Computational Social Systems, 6(5), 870-878.
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Please research Defi, DAO, and NFT in the context of blockchain to answer the following questions.
- What is it?
- What are the business opportunities and threats related to it?