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The "D" Words

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Maybe you’ve noticed the proliferation of new tech terms with a “D” slapped on. The “D” stands for Decentralization. Here are a few of the new D words, showing how blockchain technology and decentralization are creating new possibilities for the future:

DeFi (Decentralized Finance)

DeFi refers to all the monetary functions and applications that use blockchain technology. This includes digital money itself, like Bitcoin and Cardano Ada. It also includes the fast-growing ecosystem of tools that enable transacting with digital money. For example, using digital money to buy goods and services, or replicating other financial services like loans, insurance, and crowdfunding.

For each of these types of services, we are accustomed to dealing with middlemen: Visa or PayPal to process payments, banks for lending and safeguarding money, etc etc. In every case, these middlemen hold disproportionate power, set all the rules about their cut of the pie, and even control who gets access to services. DeFi removes the middleman, and offers a new way to think about how we might structure and access financial services.

DApps (Decentralized Applications) At the end of the day, these systems are all just computer software. Programmers are writing code to execute different functions; what is new is the element of decentralization. DApps are simply computer applications that are designed to run on a decentralized network. These include apps for DeFi, but they can also include web browsers (like Brave browser), games (like EOS Dynasty), voting (like Voatz), supply chain management systems (like IBM Blockchain), Charitable giving (like TraceDonate - and the ultimate future of our own Phuffy coin!), and the list goes on.

We are all familiar with computer and phone apps that we interact with every day. DApps are leveraging decentralization to explore a new frontier in software applications.

DEX (Decentralized Exchange)

There will always be multiple blockchain networks; they have different utilities, different applications, different sets of investors and users, different values that rise and fall. Just like we need to transact between different countries and different fiat currencies, there will always be a need to move value between blockchain networks. These transactions take place on an exchange.

Today, most of these types of transactions take place on CENTRALIZED exchanges. Coinbase, Binance, and Crypto.com are a few examples of popular exchanges. A centralized exchange is a bit like a traditional bank: it’s a company offering a service. In exchange for that service, they set the policies and fees that you must accept in order to use the service. There are some advantages to centralized exchanges; today at least, they are more beginner-friendly, and since the users are in fact “customers”, they will generally provide some level of customer service. Currently, centralized exchanges are the only good way to trade crypto for fiat (ie US dollars). There are also disadvantages; since they are centralized, they are more susceptible to hacking, interference, and failure. Transaction fees charged by centralized exchanges can stack up quickly, and the policies about how they conduct business may not be in the best interest of the user.

Ultimately it’s no surprise that in an emerging ecosystem based on the value of decentralization, the thinkers and builders would dream up a way to decentralize exchanges as well. A “DEX”, as it’s called, allows peer-to-peer transactions between cryptocurrencies, with no intermediary. The terms of execution are built into smart contracts - basically software built on the blockchain. Advantages of a DEX include securing your assets against hacking risks, cheaper fees, access to new assets that are not available on centralized exchanges, and greater anonymity. There are also some really notable disadvantages, especially in these early days. DEXes are not known to be beginner-friendly. The onus is really on the user to understand how a particular DEX works. If something goes awry, due to user error or otherwise, there is no one on the customer service line to bail you out. Finally, DEXes do not address the need to transfer value out of Crypto and into fiat money. In today’s world, that is still a critical link.

DAO (Decentralized Autonomous Organization)

DAOs are a way of organizing work and responsibility in a collective. Instead of the familiar top-down (centralized) model for decision-making and control, DAOs use blockchain to enable a new way to work together. Instead of a pyramid, imagine a hive. Imagine all the advantages of decentralization described here - but applied to humans. If this is hard to imagine, check out our deep dive article on DAOs! https://www.lidonation.com/en/posts/decentralized-autonomous-organization-organization-that-put-people-first

Your turn!

Now that you know a little more about them, you will start noticing more of these “D-words”: in the news, in social media, and in the conversations around you. Decentralized organizations might be intimidating, because they are so new, so different, and frankly there are still some rough edges! But don’t be afraid to lean in, take a peek, and maybe try something new. The people working on building decentralized services are usually smart, interesting, and idealistic. By definition, the goals of decentralized projects are about elevating the collective. They are about sharing responsibility, work, and rewards in ways that are more equitable for more people. YOU are one of the people we hope will join us on the journey!

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