Firstly, we are sure that you’ve all heard of NFTs, but DeFi platform Malaysia must be a new term to some readers. Well today you’ll be learning about both DeFi and NFTs, what are they, their similarities and differences too. We bet you’ll stick around if you’re interested in NFTs and cryptocurrencies!
NFT or a Non-Fungible Token is a one-of-a-kind, unique token that exists on a blockchain. These NFTs are all unique and have their own identification codes, metadata that can set them apart from others. NFT ownerships are recorded in the blockchain and can be transferred from one owner to another, by trading or selling. A person can buy an NFT with cryptocurrencies like Bitcoin or Ethereum.
Decentralized Finance, or DeFi, is an umbrella term for financial services like borrowing or money lending, trading and investing all on the blockchains. It’s generally a digitized version of bank that exists and leverages blockchain technology. DeFi provides an alternative to the conventional banking methods, and in return it will take a small service fee. Anyone can transact with each other without disclosing any identities or applying to a central agency, at any time they would like.
NFT vs DeFi
Here are some of the differences between DeFi and NFTs in certain parameters of comparison.
NFT: Unit of data stored on the blockchain, not mutually interchangeable
DeFi: Financial instrument without banks
NFT: Provides value-added services, and helps with the tokenization of certain assets. Can also store specific unique values.
DeFi: Provides a platform to be used for financial transactions and services, can carry out several different processes and transactions
Application & Protocol
NFT: No applications or protocols
DeFi: Smart contracts, DeFi protocols & applications known as DApps.
Concerns of NFTs and DeFi
There are some major concerns circling NFTs and DeFi. As for NFTs, they are very volatile and most of the time, the buyer & seller will not know anything about the asset that they are trading. This can cause unrealistic bidding offers which is why you will see crazy news about NFTs going for over $5 million. Apart from that, NFTs do not provide investors with a passive income. It is very much unlike rent-generating real estate, interest bearing bonds or dividend paying stocks, therefore NFTs will not offer owners any potential of a steady passive income. There is also a huge lack of regulation as governments globally do not recognize NFTs as an asset. Therefore, there is no security board that regulates the NFT markets to protect users and investors.
The concerns for DeFi are as follows. It is claimed to be unreliable because it is a relatively new service, and it is almost impossible to predict when the tokens might crash or give a high return. Other than that, DeFi transactions usually happen on the Ethereum blockchain and each of the transactions will require an amount of ETH. With the recent hike in crypto mining cost, these transactions will cost a lot more therefore increasing the transactional rate. Lastly, there is no security with DeFi, which is why cyberattacks on DeFi increase day by day. DeFi apparently accounts for more than 70% of crypto thefts in 2021. Despite these arguments on the concerns, many still consider DeFi a reliable platform for crypto transactions.