Discover the key differences between DeFi, CBDC, and UPI with this comprehensive guide. Learn what DeFi is and how it works, explore the benefits and risks of this emerging technology, and compare it to the centralized models of CBDC and UPI. This article will provide you with the essential information you need to understand the unique features and potential of DeFi, and how it differs from other payment and settlement systems.

What is DeFi and how it is different from CBDC and UPI?

From the barter system to paper currencies, to digital finance, we have come a long way. While cash is still the king but digital currencies and digital payment methods are taking over rapidly. Decentralised Finance (DeFi) has been a game changer in recent times, which has been disrupting the entire financial organisational structure and the way payments and currencies work. In this article, we will see how DeFi works, and its benefits while also understanding how it is way different from CBDC and UPI. 

Decentralised Finance (DeFi) is referred to different financial services that are performed using blockchain technology, especially on the Ethereum blockchain. DeFi supports most of the transactions, and functionalities of any bank such as borrowing, lending, buying insurance, trading, investments, earning interest on deposits, and a lot more. However, the time taken for performing the functions or offering the services is less due to no involvement of third parties and paperwork. It is all digital and direct between the client and the platform. Cryptocurrency, which is also one of the forms of DeFi, is popular globally and offers peer-to-peer payment services and other financial services without any intermediaries and is also not controlled centrally. This is why it is known as Decentralised finance, which is not centrally monitored and controlled. 

Decentralised Finance or DeFi works through software or applications like the ones you use on your smartphone. These applications run mainly on the Ethereum blockchain and here you do not have to go through a complex onboarding process to use the applications. You can download the applications and start using the same. 

Here are the top usages of DeFi apps in today’s world – 

Lend and earn: You can lend your crypto holdings if you have any to earn interest on the same. Since DeFi lending apps are peer-to-peer lending apps, you can easily lend your crypto holdings to another user directly without much ado. Lenders usually earn interest on the value of cryptocurrency lent every minute, yes, it is not per month or annually, it is every minute, and the lender can earn interest. 

Short-term borrowing: Banks and other financial institutes have a lot of formalities and criteria to be fulfilled to offer you a loan but with these DeFi apps, you can easily avail of flash loans which are short-term loans for your usages when required. 

Trading and investments: DeFi apps have made trading and investments into cryptocurrencies super easy. You can easily trade cryptocurrencies anytime using these applications while you can also buy and hold the currencies for long-term investment purposes. Here there is no stock exchange or SEBI or depositories for which you need to open a Demat account and trading accounts. You can simply open a DeFi app and select the token you want to trade or invest in, then click on buy or sell and enter the amount, and click on submit, it will be done. You can check the same in your wallet on the application. 

Trading derivatives: With stocks and other assets you may have traded in derivative contracts, now with DeFi apps, you can trade crypto derivatives too. 

DeFi has been made to overcome the shortcomings of the traditional banking sector. In the conventional banking sector, there is a lag in every department due to manual procedures, which DeFi is mainly targeting to solve. 

DeFi has been offering ‘open to all’ facilities, where you just need to create a wallet on any of these DeFi apps and then get started. You can even use the application as anonymous which is one of the best things about decentralised finance, however, this is a bit risky, as this increases the chances of fraudulent activities too. 

DeFi apps are super flexible, unlike conventional banking applications. You can transfer, make payments, buy and sell, and make other transactions without paying any hefty fees or waiting for permissions. This also cuts down on the time taken for the transactions to happen. DeFi apps offer transactions which are faster than transactions happening on Wall Street as per some studies. 

Now that you have an understanding of DeFi, let’s see how it is different from CBDC and UPI. 

Control: While DeFi is itself the short form of decentralised finance, CBDC is Central Bank Digital Currency, which is centrally monitored and controlled by RBI. UPI on the other hand is monitored as well. 

Nature: DeFi is the term given to the universe of peer-to-peer financial services while CBDC is the digital form of the rupee and UPI on the other hand is a payment system. So, all three are different from each other. 

Usage: The components of DeFi or the services which are offered by the DeFi apps at present include almost all kinds of financial services. On the other hand, UPI is mainly a payment system which is used to make online payments easily without much hassle lastly, CBDC is the currency itself which is used for making transactions digitally. 

Approval: CBDC being the central government’s digital rupee, is undoubtedly a legal tender. UPI is legalised in India as it has been developed here and finally, DeFi is still unregulated and unorganised so, still not legally approved. 

Whether it is DeFi, CBDC, or UPI, all will be a part of the future financial system. While UPI has become quite popular in India, and it is also getting accepted worldwide slowly, DeFi is still on its way to making its presence felt in this economy, and CBDC has just made its debut, so, we need to wait to see how it turns out to be. 

Learn about NFT and its role in Blockchain technology. Discover how NFTs work, their benefits, and potential use cases. Get a comprehensive understanding of this revolutionary concept in the digital world.

What is NFT? How does it work in Blockchain?

NFT space has seen a lot during the last two years. From multiple scopes and highs in 2021 to the lows and challenges in 2022, this space has grown up. In 2023, NFT marketplaces are maturing and now it is quite evident that the platforms that are going to stay for the long run have to offer certain utilities to the users to retain their value in the market. If you are new to NFTs, or interested in understanding how they work and about the recent developments in this arena, then this article can be of great help.

NFTs stand for Non-fungible tokens and as non-fungible means, they are unique, and irreplaceable, and so are these tokens. While many people confuse NFTs with cryptocurrencies, they are poles apart. While cryptocurrencies are fungible, NFTs are not though both runs on blockchain technology.

NFTs become unique due to the digital signature that it holds. NFTs are virtual assets which are mainly some kind of artwork like videos, photos, collections of comics, games, trading cards, and other similar collectibles in the digital format. 

NFTs are developed using blockchain technology which is a distributed public ledger for recording transactions. Along with the digital signature that every NFT holds which makes them unique, there is also a unique identification code in each of the NFTs. The data stored in the underlying blockchain helps in verifying the ownership of the NFTs. 		

The value of the NFTs is decided as per the demand and supply of the NFT. So, if the demand is high, and since each NFT is unique, the price can go up to anything. It is more or less like an auction of any physical asset where the bidder with the highest bid gets the chance to buy the asset. 

The NFTs are used for different purposes which include – 

Creation of digital content for communication, promotions of brands and other similar uses. This is one of the most popular uses of NFTs in recent times as multiple reputed brands are now exploring NFTs for their advertisements and promotional work. The ownership of the content lies with the creators which makes it super easy to publicise without losing ownership rights and originality. 

NFTs and gaming have become two sides of the same coin after NFTs become popular in 2020. The developers of different gaming organisations are putting NFTs into use as with the same, they can offer multiple benefits to the players. While normal online games offer different purchase options, with NFTs, you can also resale your used gaming items, or those you have purchased and used already and earn from the same and use that for buying new items and features. 

NFTs can be great as collaterals too. They are digital assets after all having value as per market demand and thus are used as collateral too. Especially along with DeFi applications which are for money-lending purposes. 

If you want to invest or buy NFTs, you can do it by following the steps mentioned here. It is not a hectic process and one can buy on their own after learning the same. 

Firstly, you need to open an account with any cryptocurrency exchange. Choose the platform after comparing the fees charged by the platform for different transactions and other services. 

Then you need to choose a crypto wallet for the transaction to happen. You need to fund your crypto wallet by buying Ethereum which is the most supported cryptocurrency for buying and selling NFTs. 

Once the wallet is funded, then you can easily buy and sell the NFTs using the ether in your wallet. 

In 2023, the pivotal changes and trends that the NFT space is witnessing include a structural shift like these tokens. They are becoming highly usable for benefiting the users and increasing their value and retaining the same. 

Recently, Psychedelics Anonymous, a Web3 brand which is mainly focused on NFTs, launched its merchandise chain which needs NFTs from its collections for buying the apparel.  

Recently many well-known brands are using NFTs to publicise their company and brand. Starbucks is one of the new names in this list who are using NFTs for a reward program for their customers. The customers can take part in the events, games and other online programs and earn rewards which are called “journey stamps”. 

Along with these developments, awareness about NFTs, web3, and blockchain is also picking up which is playing another role in the growth of NFTs. 

To conclude, it can be said that it is just the beginning of something which is the future of creativity, transactions, and investments in the new world. It is still in the nascent stage and there is a long way to go further. With growing awareness and usage of NFTs, they are becoming popular with time. 