What is DeFi? How is it different from Crypto and Bitcoin?

Here you will find Defi, Crypto and Bitcoin explained in a way that addresses the risks and opportunities Singaporeans should know about.

We’ve all read about individuals who made millions and changed their lives through cryptocurrencies. Or heard of cases where investors lost a lot of their hard-earned savings through cryptocurrency busts, scams and hacks.

So, which is it: Are cryptocurrencies and DeFi the revolution in finance as prophesied? Or are they merely a risky fad that will soon wither and fade?

For newcomers, it is not easy to make sense of the cryptocurrency space. When you do your research you’ll find articles and notable figures articulating views that support both sides.

We’ll give you an objective understanding of the topic, so you can be equipped to further explore the exciting possibilities of cryptocurrencies. All while keeping your feet safely planted on the ground.

What is Fiat Currency?

Let’s start with what we’re most familiar with – fiat currency.

We might not always use the term, but what we traditionally think of simply as ‘money’ is fiat currency. This refers to money issued by the central bank of a national government. You can think about Singapore Dollars, the US Dollar, and the Chinese Yuan as fiat currency.

Fiat currency is not backed by any physical commodity, and derive their value from the ‘full faith and credit’ of their respective countries. Given their status as legal tender, fiat currency is extremely handy for purchasing goods and services.

However, the value of fiat currency is particularly vulnerable to inflation and devaluation. Especially when a central bank decides to arbitrarily and aggressively increase the supply of fiat currency circulating in the monetary system. Everyone paying attention to the stimulus packages that nation-states have been handing out since the onset of Covid-19?

The average yearly inflation rate in the United States is upwards of 2%, while Singapore’s annual inflation rate fluctuates from a low of 1% to a high of around 5%. It is worth noting that in comparison, most fixed deposits and cash management accounts provide returns of less than 1% per annum over the same time period. Which means your money sitting in your bank, isn’t even beating inflation.

Interested in more? Check out the full article for a deeper dive.