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DeFi – Introduction , Advantages and Risks-2022

With a focus on its features and subsets, this article will analyse a number of studies and researches on decentralised finance with the goal of providing a summary of how the ecosystem is changing and how it might alter the structure of contemporary finance by fostering new opportunities for innovation.

INTRODUCTION

Decentralized financial innovation, or DeFi, is the shift in the economic paradigm made possible by decentralised technology, primarily blockchain networks, which gave rise to a whole movement with the invention of bitcoin (S.Nakamoto, 2008). Blockchain and Distributed Ledger Technologies (DLT) serve as the foundation for technology that is transparent, immutable, and without boundaries. Launched in 2015, Ethereum is the first programmable blockchain in existence. The idea behind the Ethereum Virtual Machine is that it can run more complex applications, allowing for the direct control of digital assets by a piece of code, the implementation of methodical rules, or even the creation of decentralised autonomous organisations using blockchain technology (DAOs).

Because Ethereum is programmable, programmers can use it to create new sorts of apps (G. Wood, 2014). It is feasible to execute programme logic decentralizedly using smart contracts as the foundation for Decentralized Applications (dApps), as all peers in the blockchain network validate transactions to maintain the accuracy of the ledger. The programme logic is executed as a result of these transactions, which causes modifications to the state of globally shared objects.

The concept is to build and run financial decentralised applications (dApps) on top of transparent and unreliable infrastructure, such permissionless peer-to-peer (P2P) protocols. This emerging idea of “Open Finance” mainly refers to digital assets, financial smart contracts, protocols, and decentralised applications created using distributed ledger technology or open blockchains. There were 214 DeFi projects mentioned as of June 2020, 199 of which utilised the Ethereum Blockchain architecture (DeFiPrime, 2020). In conclusion, the DeFi movement is moving traditional financial goods to the open source and decentralised world, eliminating the need for intermediaries, cutting costs generally, and significantly increasing transparency.

What is DeFi, and why is it so popular right now ?

DeFi, also known as “Open Finance,” is a collection of Blockchain/DLT-based financial services and applications that aim to supplement or replace the current financial system, also known as “Centralized Finance.” Decentralized Finance offers many advantages over conventional financial services thanks to the usage of distributed platforms and smart contracts. Deploying a financial application or product becomes far less difficult and demanding as ecosystems develop. For instance, a lot of decentralised applications (dApps) are being created on top of the Ethereum blockchain, which offers cheaper entry costs and operations costs (Binance Academy, 2020).

Numerous efforts are already making progress in the various sub-sectors that make up the larger DeFi landscape. These specific projects were formed on the Ethereum network, although others have been 317 developed or already exist on other permissionless blockchains like Bitcoin. The developers of DeFi are able to make their services available to everyone with a device and an internet connection by employing permissionless networks.

Currently, DeFi’s three main purposes are :

1.interpreting financial banking services (e.g., Issuance of stablecoins)

2.offering platforms for peer-to-peer (or pooled) lending and borrowing

3.enabling cutting-edge financial tools including Decentralized Exchanges (DEX), Platforms for Tokenization, Derivatives, and Predictions Markets

Some of the most common use cases

Stablecoin

A cryptocurrency that aims to keep its market price steady is known as a stablecoin. Since these digital currencies have become more widely used, many stablecoin projects have emerged. Stablecoins are designed to offer some of the benefits of both the fiat currency and cryptocurrency worlds. Stablecoins can be used as a stable currency that offers improved transparency and decentralisation, although they are currently largely employed as a hedge against the extreme volatility of cryptocurrency markets. Additionally, compared to conventional fiat currencies, they offer quicker transactions and reduced fees, with an average of $0.2 per transaction (Ethgasstation, 2020), which makes them a great alternative for international transfers and regular payments.

Stablecoins are designed to be fairly immune to market volatility, thus they shouldn’t undergo big price movements, though the specific processes vary from currency to coin.

320 The value of many stablecoins is fixed by tying them to the value of another asset. Although the majority of them are tied to the US dollar, stablecoins can also be linked to the value of other cryptocurrencies or even physical commodities like silver or gold. These currencies avoid the dramatic price swings produced by the high levels of volatility, which are quite typical in cryptocurrency markets, by being tied to real-world assets (Binance Academy, 2020).

Borrowing and Lending

One of the most popular subcategories of open finance, lending and borrowing dApps, are supported by the Blockchain in large numbers. Users can use their cryptocurrency as collateral in smart contracts and borrow money against it. Following that, it automatically paired lenders and borrowers and dynamically adjusted the interest rate based on supply and demand as well as open lending rules (C.Bhardwaj, 2020).

Decentralized Exchanges

2020 is already looking like the year that decentralised exchanges take centre stage. The DEX ecosystem is growing stronger every day thanks to improved usability, greater liquidity, and rising composability. Due of their fiat onboarding and convenience of use, centralised players have long attracted the attention of many when it comes to cryptocurrency exchange. Contrary to popular belief, many have been quick to point out that centralised exchanges have their own unique hazards, particularly those related to custody. Many traders have learned to respect the non-custodial options provided by decentralised exchanges, which were famously highlighted by hacks on formerly well-known exchanges like Mt. Gox in 2014.

Funding protocols, software development tools, index creation, subscription payment methods, and data analysis software are a few further examples of products and use cases.

The Advantages of DeFi

Wider global access to financial services

According to the World Bank Group’s 2017 report, 1.7 billion adults globally do not have access to any financial institutions. Decentralized Finance aims to provide basic financial services for all of its users using a smartphone and an internet connection, breaking down the status, wealth, and geography barriers that limit global access to the financial world most industrialised nations take for granted.

Affordable Cross Border Payment

DeFi services are anticipated to reduce the average global remittance charge from its present, frequently outrageously expensive 7% to a much lower 3% average by doing away with the need for some intermediaries (C. Hoffman, 2020).

Improved Privacy and Security

Data breaches in centralised organisations, such as the First American Financial breach in May 2019, exposed almost 885 million personal and financial details (Krebson Security, 2019). A decentralised system, by definition, lacks a centralised single point of failure that may enable this kind of breach.

Censorship resistant transactions

Governments or big businesses cannot filter or turn off a full DeFi system. In countries where the current governments and financial institutions may be dishonest or unreliable, a system like this can deliver stability and an alternate option. Developers of these new DeFi applications will concentrate on making a simple and straightforward user experience so that any user may fully benefit from the new system that is being implemented in an effort to popularise their services. While each of these advantages is strong on its own, together they have the potential to have a significant impact.

Risks

Due to a number of difficulties relating to fraud, volatility, usability, and regulatory ambiguity, DeFi has not yet realised its full potential. Decentralized finance can be susceptible to fraud and the spread of unproven financial ideas, to start.

By offering collateral that can be utilised to collateralize other actions taking place in the DeFi ecosystem, a DeFi savings account enables you to lend to others in an efficient manner. Your savings are used to finance other people’s purchases, just like in a traditional bank. The difference is that in traditional finance, your savings are multiplied through fractional reserve banking to extend many times more than the actual amount of savings, whereas in DeFi it’s the opposite because DeFi requires over 330 collateralization. Given that you can only lend an amount that is less than what you have in savings, it is more like a negative fractional reserve rate.

There is a new class of risks, though, when you place your savings in an account that is a component of a smart contract in a DeFi system. The risk is not that your bank will fail and the deposit insurance won’t be able to cover all the covers, which is a counterparty risk; rather, the risk is that the smart contract itself will have a coding security flaw. A defect in the smart contract could cause your savings account to be emptied or allow for theft by a third party. At this point, this can be applied to all DeFi applications. There are bugs, but the questions are “how serious they are” and “how easy it is to exploit these vulnerabilities,” not “whether there are bugs.”

Due to the environment’s complexity, the risk has moved from counterparty institutions and third-party custodians to software coding risk, when one or more errors were committed by the smart contract’s creators.

Conclusion

The next significant change to the financial system may be decentralised finance. This new wave of applications and services, powered by blockchain technology, will give the unbanked access to financial services, lower transaction costs, increase security, and give users a seamless experience from anywhere in the world. As with any new technology, it’s vital to step back from the marketing hoopla and consider the obstacles in the way of widespread adoption. For DeFi, they include difficulties that touch on interoperability and transaction speeds as well as legal issues. DeFi won’t be able to realise its full potential until these difficulties are dealt with and overcome.

DeFi now takes a great deal of information because the technology is still in its infancy and prone to issues, hazards, and security flaws.

Also Read ,

1.A-Z Guide of Blockchain Gaming-2022

2.Crypto Lending – An Easy Source Of Passive Income-2022

3.Role of Blockchain in Global Healthcare System-2022

4.Blockchain-Based Voting System : 2022

5.How To Become Blockchain Developer  ?-2022

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Role of Blockchain in Global Healthcare System-2022

Blockchain has a broad range of applications and uses in Healthcare Centre. The management of the medication supply chain, safe data transfer of patient medical records, and assistance in genetic code discovery are all made possible by distributed ledger technology.

Blockchain technology has been discovered to be advantageous in actual healthcare environments, according to a study titled “The Use of Blockchain Technology in the Health Care Sector: Systematic Review” by Associate Professor Dr. Khang Wen Goh from the Faculty of Data Science and Information Technology at INTI International University and eight other international researchers.

The main objectives of this study are to evaluate the existing literature on blockchain technology’s application in the healthcare sector and to look at the traits that prior blockchain technology-based research has in common.

The management of Electronic Medical Records (EMRs) was the primary focus of the majority of the study on blockchain technology in healthcare environments, according to the findings of the systematic review, said Dr. Goh.

The use of blockchain technology in fields other than EMRs, such as biomedical research and education, remote patient monitoring, pharmaceutical supply chains, health insurance claims, health data analytics, and others, was also discussed by the speaker.

Now , we will go through a detailed discussion over the role of Blockchain in Healthcare centre .

You can click on Blockchain-Based Voting System : 2022 to know more current status of global Voting System.

Security Through Blockchain

It’s not surprising that the most well-liked blockchain healthcare application at the moment is keeping our critical medical data safe and secure. Security is a significant problem in the healthcare sector. From July 2021 to June 2022, 692 significant healthcare data breaches were disclosed. Health and genomic testing records, as well as banking and credit card information, were stolen by the offenders.

Blockchain is a technology that is ripe for security applications because it can maintain an incorruptible, decentralised, and transparent ledger of all patient data.

Additionally, blockchain is both private and transparent, obscuring any person’s identity with intricate and secure protocols that can safeguard the sensitivity of medical data. The technology’s decentralised structure also makes it possible for patients, physicians, and other healthcare professionals to easily and securely share the same information.

The bitcoin market helped make blockchain technology more well-known, and businesses like Deloitte and Microsoft have lately made investments in it.

Security is ensured in a blockchain because each piece of data is combined with others before being confirmed at every node in the network of interconnected databases. The data becomes buried and more challenging to manipulate when blocks are increasingly joined together. The requirement for single-point, independent fiduciaries is eliminated by this method.

With this level of protection, blockchains might be used to store health data, making it simple for individuals with authorization to access and transfer the data. Advocates claim that by providing patients with ongoing access to their wellbeing information, this could encourage good lifestyle choices in the face of chronic illnesses.

Fundamentally understanding your score as an individual, as a customer, is the key to having control over your own health, according to Kay. “Consider having access to and control over who sees your personal health and wellness records at any time during your life.”

In the future Kay described, there will be “zero friction points between the time a patient sees a doctor and the time the payments and settlements are done,” because to the data’s navigability on blockchains.

In terms of providing interoperability and the transmission of pertinent patient data from one location to another, blockchain holds the most promise for caregivers.

Is the global healthcare system collapsing, and is blockchain the answer?

The global health care business is on the verge of collapse, according to Deloitte’s 2022 Global Health Care Outlook. The COVID-19 pandemic has worn out medical personnel, overburdened institutions, adversely affected and further marginalised sizable segments of the population, and reduced demand for and access to non-COVID-19-related medical care.

In other words, the pandemic  has made an already failing healthcare system worse. This sector has been plagued by years of inefficiencies, funding reductions, failed reformations, and overcentralization. However, this is fixable.

Extreme measures must be made to make sure that the global healthcare system does not completely fail. The adoption of blockchain technology will enable a decentralised and dispersed setting that, in the end, benefits and safeguards everyone, as a healthy healthcare system ought to.

When communicating with different parties, blockchain-based solutions for health documentation provide secure encryption methods that protect the integrity of users’ personal information. Pre-authorization will be drastically reduced by tokenization, smart contracts, and the encryption methods used in blockchain network transactions, allowing patients to receive the necessary and informed care more quickly. When previously relying on the patient or on files physically delivered or emailed from many sources, such as local doctors, labs, etc., the healthcare professional is now able to get the pertinent information promptly.

Tokenisation can assist and enhance communication between the patient and the healthcare practitioner in addition to facilitating more effective contact and communication between insurance companies and healthcare providers.

Five Major Uses of Blockchain in Healthcare

1. Boost Doctor-Patient Communication

You have complete access to and control over your own private health data with MedicalChain. While data is kept safe on the blockchain, users can provide clinicians rapid access to their health record via their mobile devices. Additionally, patients can wear wristbands that can be scanned by medical personnel to retrieve a patient’s medical information if they are asleep. Additionally, it provides telemedicine communication, allowing for doctor video consultations over the internet.

2. Prevent Diseases

The U.S. government agency Centers for Disease Control and Prevention (CDC) is presently investigating blockchain-related use cases for disease prevention. It outlines the use of blockchain in particular for timestamping documents to quickly identify and report disease outbreaks.

For that reason, the CDC and IBM collaborated to develop a monitoring system for government organisations that will efficiently collect and compile information about patients and prescriptions.

3. Makes Easy Access of Medical Records

Patient data management is one of the most well-liked blockchain applications in healthcare. Since health organisations frequently separate medical information, it is impossible to ascertain a patient’s medical history without first contacting their previous healthcare practitioner. This procedure can be time-consuming, and mistakes brought on by human error may frequently occur.

MedRec is a system that promotes patient agency and provides a clear and approachable perspective of medical history. It was created on the Ethereum blockchain. In order to make it easier for patients and doctors to view, MedRec is designed to house all of a patient’s information in one location. The Proof of Authority (PoA) mechanism is how the blockchain is currently maintained by providers.

4. Use of Blockchain in Healthcare and Relief Operations 

The Department of Defense (DD) and the Defense Logistics Agency (DLA) studied the possibilities of blockchain for future relief efforts using Hurricane Maria relief efforts as a point of comparison. The DLA now uses technologies that are centrally administered and divided among several organisations to track logistics. Because of this, coordination among aid agencies is challenging.

A blockchain-based solution would make it possible to input data and track it through a ledger, enabling a real-time feed of the rescue activities of various agencies. It might be able to save money and lives.

5. Blockchain to Support Healthcare Data Security

Healthcare is one of the areas for which Guardtime offers its dedicated cybersecurity module, Guardtime Cybersecurity. A single, immutable copy of health data is shared among all parties involved in Guardtime Health, a platform for patients, clinicians, regulators, and others.

Every data asset in the network is “signed” by the system using a cryptographic stamp, enabling the ability to trace each piece’s origins. As a result, the distribution and openness of blockchain ensure that any effort at corruption is quickly and transparently detected.

Possible Difficulties

Of course, there are challenges standing in the way of blockchain’s widespread adoption in the healthcare industry.

The industry itself, which is famously averse to significant change, may prove to be the greatest obstacle. Since they profit from treating specific ailments rather than the broad spectrum of health, the most well-known insurance firms now have little financial motivation to make the market easier to navigate for customers.

Then there are the strict rules that apply to sensitive topics like health care. The Health Insurance Portability and Accountability Act might not cover a significant change in how patient data is kept after it has undergone a comprehensive review.According to Stephanie Fetzer, an IBM project architect and conference panellist, “it would be at glacial speed if we were to wait for the U.S. government to enforce certain technology surrounding blockchain.”

Finally, the people who are most opposed to the adoption of blockchains may be the patients themselves. It will be challenging for regular people to trust their medical records with something they don’t fully comprehend.

In other words, before launching a full-scale revolution in health care, blockchains might need to prove themselves in more limited contexts.

Future of Global Healthcare Centre

Blockchain technology has the potential to save money, advance investments in vital resources, and assist the growth of the global healthcare sector. With so much on the line, it is implausible to believe that the dysfunctional, highly bureaucratic, and ineffective healthcare system we currently have can last. It’s time for patients, professionals, and executives to adopt the system-based innovations and technologies at our disposal.

By 2025, the implementation of blockchain in the healthcare industry could result in annual savings of up to $100 billion, according to a Bisresearch survey. The industry will progress toward full compliance and openness as a result of tokenization, which would eliminate avoidable third-party clients, counterfeit prescription medications, and dangerous malware. This could result in cost savings for both patients and healthcare providers.

Although it may be claimed that digitising and sending health information in blocks takes time, the healthcare sector is finally catching up thanks to the rapid adoption of Blockchain in other industries. The two groups that stand to gain the most from this trend are without a doubt the patient and the healthcare provider.

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