We would like to emphasize that except for having a similar name, we have no relationship with Genesis Global Trading aka. “Genesis”, nor any connections even to its parent company, Digital Currency Group.

Genesis Group, including Genesis Mining has NOT engaged in a joint venture, partnership or any other form of business relationship with Genesis Global Trading.

Genesis Group has no ties to Genesis Global Trading, neither to their trading entity, nor to their lending division. We are a completely different entity, and our sole focus is building large-scale mining data centers and mining Bitcoin.

We are devastated to witness all that has unfolded following the collapse of FTX, and we hope no more companies are affected by it. This is a bleak moment for our industry. However, we might all find some consolation in that the fundamental promise of Bitcoin hasn’t changed a bit.

In the past few years, one of the biggest topics in the cryptocurrency industry has been Ethereum’s switch from proof-of-work to proof-of-stake. After years of being postponed, the switch between consensus methods aka “The Merge”, will finally be taking place in September 2022. This blog post sums up everything you need to know.

Ethereum Mining is Over

Proof-of-work and proof-of-stake represent two different methods of securing a cryptocurrency network. As consensus mechanisms they ensure the security and processing of transactions in a digital network, but they differ in their approach. The developers of Ethereum decided that their ecosystem will no longer use the built-in security mechanism called proof-of-work. Instead they would switch to a system called proof-of-stake. Proof-of-stake does not use any mining hardware to secure the network and process transactions, and as a result, miners become obsolete after the Merge.

Proof-of-work (POW)

Proof-of-work (also referred to as “mining”) is the mechanism that keeps cryptocurrencies running. Miners run calculations on their machines to secure the network and its transactions, which costs money. Securing the network turns into “work” because of the significant effort miners have to put into it. The more machines and effort miners put into mining, the less likely they want to harm the network, which makes the network more secure. Miners are incentivized by getting rewards from the network in the form of newly minted coins. 

Proof-of-stake (POS)

In proof-of-stake, there are validators instead of miners. Validators have to use their coins as stake via a smart contract. If they acted  dishonestly, they would lose the staked collateral.  According to ethereum.org, POS is more complex, but it has better energy efficiency, lower barrier to entry, and lower risk of centralization.

When this all happens

The exact date and time of the Merge is hard to tell in advance. The developers decided it would take effect at a specific block height – when the Ethereum blocks reach a certain number. As the difficulty and the rate of block issuance are both changing variables, the exact time can not be predicted. We only know it will fall between 15th and the 17th September. 

What you need to know if you have been mining Ethereum with us

We will act in accordance with our Terms of Service §3.6 & §3.7:  : 

Your Hashpower remains active

“…the Customer accepts such risk and shall allocate Customer’s hash rate to other available blockchains and mining processes that use proof-of-work methodologies using the given algorithm for this Agreement.”

This means we will keep your hashrate running, and dedicate it to the next best thing. It is not yet clear which coin this is going to be, we will seek out the most suitable coin to mine after the merge. As your hashpower is mining algorithm specific, it will be a coin that uses the Dagger Hashimoto algorithm.

Expect some volatile days

We are switching your hashrate to a new coin based on what will happen on the market. It still has to be seen which chain emerges as the winner, considering hashrate, security, and feasibility, but you can be sure that we will pick the best one to mine. For a couple of days around the merge, we expect market and hashrate volatility to be high, so your mining outputs will likely need a few days to resume. Thank you in advance for your patience!

Pending ETH outputs will be sent out

If you have active ETH mining contracts, your remaining Ethereum you have mined will be transferred to your wallet. So if you see any ETH left on your balance sheet, it’s going to be sent to you as soon as possible. We will keep mining ETH until the last moment, meaning the transfer will happen after the Merge.

We will ask you to update your wallet address!

Once the market cools down and we pick the best coin to mine, you will need to add a new wallet address to your dashboard. As you start mining and receiving a completely new coin, we can only send your outputs to a wallet address compatible with that coin. You will be notified in time once your action is required. 

For now, you don’t have to do anything, we are taking care of the smooth transition.

And don’t forget! We are sold out, but there are many Genesis Mining impersonators claiming we are selling hashpower. Do not fall for them! Do not send them any money or it will be lost. The only way you can purchase hashpower is via our official website. But as a reminder: we are sold out!

Yours,

The Genesis Mining Team

Please be aware that:

• The only way to purchase from us is via our official website.
• We are currently not onboarding new customers.
• We are currently not selling any type of mining hash power.
• We will never ask you to send money to any address for any reason. If someone asks you to do this, they are trying to scam you and should be ignored.
• Our customer service will NEVER initiate a dialogue with you out of the platform, and only if you message them first via the customer service portal.
• We do not employ any sales agents that pro-actively chat you up with any type of private message platforms or on social media.
• We do NOT offer an iOS / Android app.
• You should always be suspicious if a merchant asks you on Whatsapp, Telegram or other not-so-formal platforms for payment
  

How can YOU make sure something like this doesn’t happen to you? Remember:

• You can only purchase from us through our official website www.genesis-mining.com. We would never ask you to send us any coins or payment via any other platform.
• genes-mining.com, and any other variations are FAKE, so always check if it’s the right spelling, the right letters, and in the right order!
• Genesis Mining does not have any “agents” on any social media platform
• The only official way to contact us is via our Customer Support team (or contact@genesis-mining.com) , or via an official email address ending with @genesis-mining.com
• Our job listings are hosted on genesis-group.com or via some official head hunter agencies. But just to make sure, always ask us if it is real via contact@genesis-mining.com

• We list all our official Social Media channels on our website. You can find them at the bottom of each page, under Follow Us. Do not sign up with, follow, or like any channels that are not listed there, and do not send DM’s to anyone. Be wary of fake accounts that look similar to us!

It might be helpful to begin by defining what a crypto wallet is. A cryptocurrency wallet is the digital storage locker for cryptocurrency, though many serve additional functions. Non-physical cryptocurrency requires a digital wallet, as well as private keys denoting who the owner of the wallet (and the cryptocurrency within) is. Crypto wallets serve both of these functions.

In order to establish an operational crypto wallet, a person may have to:

• Choose a wallet provider
• Input certain personal information
• Link a funding and deposit source, such as a bank account

Once a user takes these steps, they may be able to purchase and sell cryptocurrency, buy goods and services using crypto, and engage with decentralized finance (DeFi) products like decentralized exchanges and lending services.

Choosing a crypto wallet requires more consideration than you might think.

There are two broad categories of crypto wallets: hot wallets and cold wallets. Hot wallets refer to those that are (generally always) internet-connected. Cold wallets are not directly connected to the internet, but may become so in order to complete transactions. Let’s dive further into the specific types of crypto wallets.

Crypto Wallet Type #1: Paper Wallet

Services such as the Dash paper wallet generator allow users to print their:

• Private keys, or the encrypted signature that makes a wallet specific to an individual
• Random public address, which Coinbase likens to an email address, as it allows other users to know where to send cryptocurrency to

A paper wallet may also contain a scannable QR code for easier transactions, including but not limited to payments and crypto trades. 

Some of the benefits of a paper crypto wallet are:

• That a user can have physical possession of their public and private keys
• That a paper wallet is not immediately hackable
• That a paper wallet is disconnected to the internet, and is therefore not as vulnerable to energy- or internet-related problems as hot wallets are

Paper wallets may be as safe as the user that possesses them. While digital hacks may be averted with a paper wallet, it is vital that the owner of a paper wallet ensure its safekeeping, as losing it could have disastrous consequences.

Crypto Wallet Type #2: Desktop Wallet

Desktop wallets may generally rank behind paper wallets in terms of security (hacking-related security, at least), but ahead of online crypto wallet alternatives. 

The ostensible difference between an online-only crypto wallet and a desktop wallet is the act of downloading the wallet itself. This act results in a user’s private keys being stored on their computer hard drive rather than on an online server. In some cases, this information could be stored both on a desktop and an online server.

Having a wallet saved on one’s desktop could come in handy if:

• An online wallet host is hacked
• An online wallet host crashes

Crypto Wallet Type #3: Online Wallet

Online (or Web) crypto wallets may be the most immediately accessible and low-maintenance way to store and trade tokens. Casual crypto traders and investors may gravitate towards online wallets because:

• A third-party service may do all of the heavy lifting (providing the wallet, keys, and maintaining the server)
• An online wallet may have an easy-to-use interface
• An online wallet may be accessible from any device with an internet connection
• An online wallet may allow trading and crypto wallet services in one platform
  

Crypto Wallet Type #4: Hardware Wallet

Hardware wallets offer the physical, in-your-hand nature of paper wallets, but may offer additional features and significantly more pizzazz. Hardware wallets generally have common features including:

• A screen
• A handheld size
• Buttons or other means of operating the wallet
• The capacity to store a significant amounts and various types of cryptocurrency
• Computer connectability 

Ledger produces hardware wallets that have proven popular among crypto owners who want physical control over their token stores, as has Trezor.

Online wallets, put simply, may be the convenient option. History has shown that they are not the security-first option, however. Always connected to the internet, your online wallet could be the victim of hacking, and if the host becomes corrupted, then your wallet may be compromised just the same. You may also be taking a gamble that the hosts of the online wallet service are ethical.

Hardware wallets store users’ private keys. Unlike paper wallets, hardware wallets may have security features that prevent access to private keys in the case that the wallet falls into the wrong hands. 

One pull factor for hardware wallets is their offline nature. This, like paper wallets, makes them less vulnerable to hacks, third-party malfeasance, and other threats that loom over internet-dependent wallets. Yet, owners of hardware crypto wallets may connect their device to the internet at any time to conduct transactions. 

This gives hardware wallets a sort of hybrid nature that may prove appealing to security-conscious crypto traders.

Crypto Wallet Type #5: Mobile Wallet

Cell phones have become highly sophisticated and ever-present, and many buyers, sellers, and holders of cryptocurrency prefer mobile wallets. Many online wallets offer a mobile version, while some wallets are exclusively designed for mobile use.

Mobile wallets may warrant the same security-related concerns that any hot (internet-connected) wallet does. The funds in your mobile wallet may be only as secure as the host providing it. For that matter, it may be only as secure as your mobile device. Therefore, there is certainly an element of “buyer beware” to anyone who uses a mobile crypto wallet.

However, there are clear benefits of mobile wallets. They include:

• Extreme convenience
• Mobility
• All-in-one platforms that allow banking and trading
• Compatibility with both Android and iOS operating systems
• The ability to pay from a mobile wallet through QR-enabled scanning

In an increasingly mobile-dependent world, mobile crypto wallets offer clear benefits. You may weigh these pros and cons of different crypto wallet types when choosing the right wallet for yourself. Nomics provides a comprehensive rundown of cryptocurrency wallets in their many forms.

Yield farming is a way for those who participate in specific cryptocurrency-powered products to use their crypto to earn crypto. By promising users tokens (and interest, in some cases) in exchange for their participation, founders and promoters of decentralized finance products aim to whip up interest in their platforms.

What Is Yield Farming?

Understanding yield farming may require you to grasp what “yield” means within the context of finance. Per Investopedia, yields are “earnings generated and realized on an investment over a particular period of time”. Yields may generally come in two specific forms:

• Interest earned on an investment
• Guaranteed dividends paid in return for your investment

Yields can apply to several classes of financial assets, including but not limited to stocks and bonds. Yields can be fixed or may fluctuate with different variables, such as the value of the security being invested in. These same tenets may apply to yields issued in cryptocurrency rather than dollars, but there are also some noteworthy differences between traditional yields and crypto yields.Yield farming is a term particular to cryptocurrency, and DeFi specifically. Simply put, to farm yields is to invest your cryptocurrency in a specific DeFi platform or product in exchange for rewards, which may come as interest and/or dividends. 

Some of the most prominent projects to date for yield farming, such as Compound, involve both lenders and borrowers of cryptocurrency receiving Compound tokens (COMP) as their yield. This practice may also be referred to as liquidity mining, because those who invest their crypto in platforms while earning a yield are providing liquidity to administrators of that platform. In this sense, their role is similar to a lender who exchanges cash for:

• The guarantee of future repayment, plus:
• Interest payments

While the investor farming a yield certainly benefits from the arrangement, they may not be the only ones reaping a reward.

Who Benefits From Yield Farming?

It is clear why someone might invest their cryptocurrency in a platform or product that offers them a yield. If they were not planning to liquidate their crypto shares in the near-term, then why not earn some extra (guaranteed) coin on their stake by farming for yields? Here’s how it goes:

An investor lends their money to the platform, they receive tokens for their investment, they are ultimately repaid their principle investment, and may earn interest on top of it. It’s the classic lender’s benefit, along with some extra token. That extra token is a key distinction between traditional lending and yield farming with DeFi platforms. If the value of the token provided as a dividend skyrockets, then a DeFi lender-investor may experience returns far beyond what they could get in traditional, non-crypto markets.

Heck, if the token being used as a dividend accumulates value quickly enough, it may even be possible to make money farming yields as a borrower. Say someone borrows cryptocurrency and receives tokens as a reward for engaging in the lending platform. So long as the value of that token increases at a rate greater than the cost of borrowing, they may ultimately earn a profitable yield despite paying interest on their loan. There is always risk in borrowing, and one would have to be very confident in the rate of a token’s appreciation to bank on making money by borrowing crypto. Still, this scenario is not out of the realm of possibility, and the rapid increase in value of Compound’s COMP token just months ago serves as real-world evidence.

The last party that may benefit from yield farming is the governors of a specific platform or token. Whether governors refers to a centralized collective or participant-investors in a decentralized platform, the interaction that yield farming incentivizes is generally positive for stakeholders.. As investors flock to a platform offering worthwhile yields, the platform itself and any connected token becomes more valuable due to greater popularity. As the token accumulates value, the yields (tokens) provided by participation in the linked platform become more attractive, more farmers flock to reap those yields, and so the cycle of growth goes…

What Is the Current State of Yield Farming?

Like many specific genres of decentralized finance, yield farming has seen significant growth in participation over recent years, and in the past few months especially. With Compound paving the most viable blueprint for yield farming to date, subsequent projects have garnered similar popularity. Balancer Labs’ BAL token was issued shortly after COMP token’s debut, becoming the second governance token that would facilitate yield farming in the DeFi space, according to NASDAQ. It went on to debut with a single-day 235% spike in value, once again illustrating the fervor for yield farming, and by extension the tokens and platforms that allow for yield farming.

As more and more investors sink their crypto capital into platforms offering yields in return for liquidity, the sustainability of the practice appears real. Unless regulators crash the party, the attractiveness of yield farming may persist. 

How Do Regulators View Yield Farming?

You’d have to be a regulator to answer this question. Generally speaking, there is some worry that regulators will eventually want to have a say in how the DeFi sector is run, including how punitive measures are doled out to fraudsters. Yield farming may not be immune to this development if and when it occurs. Whenever the term “risk” becomes associated, fairly or not, with a financial sector, you can bet that at some point regulators will act. Whatever you think of their motives, this generally tends to be the case.

Like any investment, yield farming carries risk, with questions about the token issuers’ legitimacy being one of those risks. However, it is not yet possible to know for certain how regulation will affect yield farming. For now, yield farmers seem to be of the opinion that they may as well be getting it (yields) while the getting is good.

That’s part of it, but there’s more to the story.

So what is decentralized lending, how does it differ from traditional lending, and what is the outlook for this relatively nascent category of financial products?

What Is Decentralized Lending?

The mechanisms of decentralized lending are fundamentally very similar to traditional lending:

• One person lends assets, doing so in exchange for interest payments (and in some cases, additional rewards)
• Another person borrows assets, paying interest payments for the right to instant funding 

Rather than dollars, however, decentralized lending relies on cryptocurrency as the medium of exchange. Various platforms exist by which users can engage in lending-related transactions (more on that later).

Smart contracts are the mechanisms which facilitate decentralized lending. These contracts are self-executing protocols which may have several functions (distributing interest payments, enacting variable interest rates, and implementing other terms of a loan, for example). 

These contracts are unbiased, incapable on their own of nefarious motives or bad faith tactics, and allow all participants in a lending transaction to see precisely where they stand at any given time. In other words, they’re not banks.

What Are the Perks of Decentralized Lending?

Investment in decentralized lending platforms has absolutely skyrocketed in 2020, but why?

Widespread mistrust of traditional financial institutions may play a large part in bullishness towards DeFi lending. CNBC explains how millennials in particular have shown a wariness towards traditional banks, citing The Great Recession among the reasons for skepticism. 

With banks required to keep 0% of customer deposits on hand, per the Fed, it seems that willingness to try non-traditional financial products is rampant. Consider the proposed benefits of decentralized lending:

• Rather than having a financial institution with a spotty track record involved in your financial transaction, DeFi lending allows a smart contract to execute the transaction
• For lenders, interest rates on certain DeFi lending platforms may far outpace returns for other centralized investment alternatives
• Rather than a large, faceless bank reaping the rewards of lending, DeFi lending offers a peer-to-peer experience
• Lower barriers to securing a loan than are present in traditional lending processes (if you have the necessary crypto collateral, you may generally be able to secure the loan you seek)

From an investor standpoint, borrowing cryptocurrency may prevent having to sell existing stakes in crypto, which may come with fees and opportunity cost. Based on the massive infusion of capital in DeFi lending platforms in the past few months alone, it is clear that the perks of decentralized lending have legitimate appeal.

What Is the Current State of Decentralized Lending?

DeFi Pulse’s DeFi List shines a light on 12 separate decentralized lending platforms. The amount of digital assets tied up in decentralized lending platforms is substantial, with leading platforms Compound, Maker, and Aave collectively accounting for significantly more than $3 billion in digital assets on their own. DeFi Pulse keeps a running account of the entire DeFi lending industry’s “locked” assets. 

$3 billion and change is noteworthy, and becomes even more eye-catching when considering that DeFi lending markets have seen a massive infusion of capital in 2020. Still, decentralized products for lending and borrowing appear modest when compared with traditional lending. Outstanding consumer debt issued through centralized sources is more than $13 trillion.

The sizable asset gulf between DeFi lending platforms and traditional lending institutions is informative, but says little about the long-term viability of DeFi lending. The headstart that established financial institutions have on decentralized alternatives (2016 spawned the earliest DeFi lending platforms) must be considered when making comparisons.

DeFi lending platforms must be evaluated on their own merits, rather than in comparison to centralized alternatives. Through this lens, decentralized lending is a product that investors are very bullish on.

Some have observed DeFi lending’s transition from “niche” to “mainstream” (injecting billions in capital in a matter of months will have that effect). The de facto marriage between the Ethereum blockchain and DeFi lending products serves as something of a blueprint, and at this point DeFi lending is well established as a force in the projected financial markets of the near and distant future.

How Do Regulators View Decentralized Lending?

If there is one potential threat to DeFi lending, it is the same concern that clouds the crypto sector more broadly: regulation. 

Publications such as Reuters have thrown around terms like “freewheeling” to describe the state of crypto lending. These sorts of terms, generally speaking, are the sort that tend to catch the eye of regulators. 

With its massive and growing popularity to the tune of billions of dollars invested, there is no doubt that conversations about DeFi lending have already been had in the offices of the Securities and Exchange Commission (SEC). But one unanswered question remains: how, exactly, will the SEC treat DeFi lending platforms?

There is some fear that these platforms will receive treatment similar to that of Initial Coin Offerings (ICOs). In 2018, ICOs became tied to unsavory phrases like “securities fraud” and “conspiracy” when the SEC took legal action against multiple crypto firms. CNBC’s take on the SEC’s message: “new digital financial products must follow traditional securities rules”.

If this proves to be the case with DeFi lending platforms, then there may come a time when regulators begin to enforce the “traditional securities rules” to which decentralized lending products may or may not be subject.

What Is Quantitative Easing?

 Quantitative easing is a policy by which those in control of a money supply increase the amount of currency in circulation. There are various motivations behind such policies (more on that later), and bodies such as the Federal Reserve may use several specific tools to implement quantitative easing.

One lever the Fed can pull to engage quantitative easing is the purchase of securities. These include:

• Government bonds
• Corporate bonds
• Equity, which includes exchange-traded funds (ETFs) and could soon include stocks, according to Forbes
• Assets such as mortgage-backed securities

Purchasing a security essentially makes one a creditor to the entity that issues the security. The Fed, or another central bank-like body in another nation, can issue cash to financial institutions in exchange for such securities, and in doing so provide more liquidity into the marketplace. In doing so, it is expected that banks will lend that cash and stimulate economic activity.

In addition to directly providing cash to the open markets, an institution that implements quantitative easing may also reduce interest rates or lower reserve requirements. Lower interest rates may generally stimulate lending, as the cost of borrowing is decreased. Reducing reserve requirements lessens the amount that banks must keep on hand, which means they have more money to lend.

Banks generally lend whenever they are able to, as this is their primary way of earning money on customer deposits and loans they have received from the Federal Reserve. The Federal Reserve may even lend money directly to banks in the name of quantitative easing. In the school of QE, such lending is the primary catalyst for economic activity during times of sluggishness or stagnation.

Who Controls Quantitative Easing?

Those who control a nation’s money supply may generally be the ones to enact quantitative easing. In the United States, this is the Federal Reserve. In certain nations, it may be a central bank, which could be controlled by the political party in power or may be a somewhat independent entity such as the Bank of Japan, Deutsche Bundesbank, or the Bank of England.

The European Central Bank controls the money supply for 19 member nations, and now plays a substantial role in European monetary policy since the widespread adoption of the Euro. Every financial body must decide whether to enact quantitative easing based on the effect it is likely to have on those who use a currency.

What Is the Intent of Quantitative Easing?

The stated intent of quantitative easing is to stimulate economic activity through increased access to lending, specifically in times where economic activity has slowed or has shown warning signs of slowing. The logic is that more money in the hands of the public—business owners, investors, consumers—will lead to growth and spending.

This may generally be the case. Those with money to spend in worthwhile ways, or simply to burn, may tend to do so. And when this is the case, the goal of quantitative easing is achieved.

Criticisms of Quantitative Easing

The primary critique of quantitative easing is that, while it may stimulate investment, growth, and spending in the short-term, there is a very real long-term cost to such policies, namely inflation.

Fractional reserve banking allows banks to lend out money without removing that money from its asset ledgers.

This has a notable growth effect on a nation’s money supply  from an accounting standpoint. Because quantitative easing both injects cash directly into the money supply and facilitates lending, it tends to have a substantial growth effect.

Any time you grow a money supply, inflation occurs. Generally speaking, having more of something (including dollars) reduces the scarcity of that thing, so long as demand does not increase in concert with supply. Consequently, each individual unit of that thing will become less valuable. This is the core principle of inflation, and illustrates why increasing the supply of currency diminishes the value of each individual unit of money.

Because quantitative easing increases the money supply by its very principle, the most valid criticism of QE is that it trades short-term stimulus for long-term devaluation of the currency—a trade off that many argue is not worth it. After all, there is no guarantee that the stimulus will even work in the short term, while there is a guarantee that QE will contribute to inflation nonetheless.

The University of Pennsylvania’s Wharton School explains that specific QE-related policies in recent history have had ill effects in addition to inflation. For example, the Fed’s stimulus policies following the 2008 financial crisis ultimately reduced direct business investment by banks,  making the quantitative easing of 2008 a failure.

Quantitative easing can be like injecting steroids into the normal course of inflation, with no guaranteed benefit to counteract this downside.

The Case For Scarcity Through Cryptocurrency

The purchasing power of the dollar has plummeted during the past century-plus, and the continued pumping of fiat money into supply (the primary mechanism of quantitative easing) has accelerated this decline. The guarantee of scarcity once provided by the Gold Standard is a distant memory.

Those who seek a return to truly scarce stores of value may consider cryptocurrency, and may already have invested in the likes of Bitcoin. Unlike the dollar or Euro, cryptocurrency is fixed, with the supply of Bitcoin set at 21 million. Though there has been debate over whether to eventually increase the supply of Bitcoin and other cryptos, the type of exponential growth that has ravaged the dollar’s value is unlikely.

Scarcity is a central tenet of cryptocurrency’s value, a fact which is not lost on those who benefit from it.

Did we get you interested in cryptocurrencies? Why don’t you start mining them with us? Create your free dashboard, and buy some hashpower! Sign up now!

1. Decentralization, which is provided by blockchain technology
2. Non-custodial products, meaning that there is no middleman between the user and the financial product being utilized, only a protocol

With these founding principles laid out, what is decentralized finance? What are its benefits and drawbacks, and how is it being viewed through the all-seeing eyes of regulators?

What, Exactly, Is Decentralized Finance?

Breaking down the term “decentralized finance” may be a simple, yet effective starting point for explaining the emerging phenomenon. 

Let’s start with finance.

According to Investopedia, the noun finance refers to “matters regarding the management, creation, and study of money and investments”. For the sake of the DeFi discussion, the management and creation of money and investments may be the most pertinent features of this definition.

The Corporate Finance Institute (CFI) provides specific examples of finance, including “investing, borrowing, lending, budgeting, saving, and forecasting”. Lending, investing, forecasting, and borrowing may generally be the most relevant of these examples when it comes to decentralized finance.

And what about the “decentralized” aspect of DeFi?

Merriam-Webster provides two definitions of “decentralization”:

• the delegation of power from a central authority to regional and local authorities
• the dispersion or distribution of functions and powers

Each of these definitions apply to decentralized finance. Collectively, decentralized finance appears to be the engagement in finance-related activities such as lending, borrowing, investing, and forecasting through means that have no central authority, where instead management over a financial system (insofar as there is management) is dispersed.

From a 1,000-foot view, this is an accurate depiction of the core tenets of DeFi. Now to get a bit more specific…

Decentralized finance comprises financial platforms and services built upon and powered by blockchain technology. These services vary in their purpose and specifics, but may generally allow users to borrow or lend cryptocurrency, purchase and sell coins, speculate on the future value of commodities, and purchase or sell tokenized assets.

Like other evolutions in the finance sector over the years, decentralized finance is a new way of engaging in the economic activities that facilitate the making (or losing, if you’re unlucky) of money. The primary pull factor is that, rather than requiring a middle man/institution, it is the users who control the mechanisms that facilitate their transactions (at least in theory).

What Allows DeFi to Work?

In short, blockchain technology and specific protocols allow decentralized finance to function. Beneath both of these critical elements is the internet, without which blockchain technology would not be possible.

One definition of a protocol is a “set of rules or procedures that govern the transfer of data between two or more electronic devices”. When protocols exist on a blockchain, a network of computers, known as nodes, carry out specific protocols. These protocols govern features of a blockchain such as:

• The algorithmic mechanisms by which nodes communicate
• The means of approving transactions within the blockchain
• The means by which new nodes are accepted into the blockchain

These protocols undergird blockchains in general, and are therefore the enablers of decentralized financial products. The specific ends to which DeFi application founders use these protocols determines what each product can do for its users.

What Are the Benefits of Decentralized Finance?

The benefits of decentralized finance vary from one general DeFi category to the next, and even one application to another.

But, generally speaking, the benefits of decentralized finance lie primarily in decentralization as a principle. Without decentralization, the benefits of DeFi become far less obvious.

The thinking goes that centralized financial institutions are flawed in several ways, including but not limited to:

• Lack of control over how the system works by those who prop the system up (the financial consumer)
• Lack of transparency into how decisions affecting the financial system are made
• Lack of control over and transparency into how your specific deposits are handled
• The potential that arbitrary or bad-faith decisions by financial institutions or regulatory bodies could put your deposits at risk

Proponents of DeFi aim to flip these flaws on their heads. Their goal: to use the antithesis of centralized financial institutions—decentralized financial products—as the selling point for their DeFi products.

In an ideal decentralized financial system, benefits would include:

• Democratic control by participants (financial consumers) over how a system works 
• No central authority with outsize power to affect the fate of participants’ deposits
• Greater reach to customers regardless of geographic location, as all one would theoretically need to participate is an internet-connected mobile device
• Less vulnerability to outside breaches due to decentralized security protocols
• Greater autonomy to customize specific blockchain protocols democratically, which may allow dynamic shifting of interest rates for lending cryptocurrency as one possible benefit

Trustworthiness is a key benefit of DeFi, as agreements are solidified by smart contracts which manage the exchange of coins. Rather than simply having faith that a bank will come up with your assets (which they’ve lent out in the meantime) when you request them, smart contracts provide guarantees that your coins will be delivered when predefined conditions are met.

Keep in mind that these are ideals of decentralized finance, and time will tell the extent to which real-world DeFi products live up to these gold standards.

What’s the State of DeFi Today?

As of now, decentralized finance is virtually synonymous with the Ethereum (ETH) blockchain, known for its customizability and user-friendly interface. DeFi Pulse notes how existing, Ethereum-based products in the DeFi space offer:

• Lending and borrowing of cryptocurrency
• Decentralized exchanges for purchasing cryptocurrency
• The ability to bet on fluctuations in the value of assets by purchasing synthetic derivatives
• Peer-to-peer payment services 
• Tokenized asset management

You can view an extensive list of DeFi products, including industry lending leaders such as Aave, Maker, and Compound here. 

It is fair to state that decentralized finance mirrors the slate of non-decentralized financial products, sans the middle man (traditional financial institutions). Another difference between DeFi and more traditional financial products is the relative youth of the decentralized finance sector, which continues to evolve at a rapid clip.

How Do Regulators View DeFi?

There seems to be a looming spectre that regulators will come for DeFi products, sooner or later. Just as the Security and Exchange Commission (SEC) eventually cracked down on ICOs in the name of curbing digital fraud, some have gone so far as to state that “regulators are circling” the DeFi sector.

As with any regulatory matter, speculation and opacity will rule until regulators—the SEC or otherwise—make an overt move. Calls for self-regulation as a means of warding off outside regulation may, if history is any indicator, range from naive to overly optimistic.

The perception that those who create DeFi products are not spawning truly decentralized products, but are rather in it for their own personal gain, is surely not helping the case of those who hope to rebuff outside regulation. 

What Is Monetary Policy?

Monetary policy refers to actions that governing bodies do (or do not) take to manipulate a money supply, as The Balance explains. The importance of the money supply cannot be overstated, as its relative size plays a role in whether inflation or deflation could take hold of an economy.

Commonly-accepted thought states that those in charge of monetary policy—in the United States, it is the Federal Reserve Board of Governors and Federal Open Market Committee—manipulate the money supply with specific goals in mind. It expands the supply to stimulate economic activity, and reduces the supply when the economy shows signs of overheating, which could lead to undesirable levels of inflation.

Who Creates Monetary Policy?

The Federal Reserve wields great power when it comes to America’s financial system, as it is responsible for crafting monetary policy—with this power, it directly controls the nation’s money supply.

The Chairman of the Federal Reserve, currently Jerome Powell, is the public face of the Fed, but two specific leadership groups—the Federal Open Market Committee and Fed Board of Governors—make the power moves. These groups collectively decide how to manipulate the discount rate (the interest rate to banks borrowing from the Fed), bank reserve requirements, and other tools such as the sale and purchase of bonds.

Though you may read that the Federal Reserve enacts the goals of Congress, the mandates are vague: grow the economy, prevent massive unemployment, etc. By the Fed’s own definition, it is an “independent government agency but also one that is ultimately accountable to the public and the Congress”.

In other words, the Fed and the Fed alone decides how to set monetary policy in America.

In other nations, monetary policy may be set by some organization similar to the Federal Reserve, such as a nation’s central bank. In Europe, the European Central Bank (ECB) controls monetary policy for member nations, as the Euro’s widespread adoption allows it to do.

And when those subjected to the negative effects of the monetary policy of the Fed or the European Central Bank are unhappy about policy decisions, what can they do?

Absolutely nothing, aside from investing in alternatives to the dollar or Euro.

Did someone say Bitcoin?

How the Fed Uses Monetary Policy to Affect the Economy

When it wants to expand the supply of money, a governing body can simply print more money (after making a compelling case for the “necessity” of such printing to the token peanut gallery, of course). Though excessive printing of money is generally considered an unsound practice that directly causes inflation, this has not stopped the Fed nor others in charge of monetary policy from doing so.

In addition to printing money (usually under the guise of economic stimulation or saving an “essential” institution from bankruptcy), those who oversee the money supply may take other measures to affect the money supply. They may buy bonds on the open marketplace in exchange for cash, lower the amount of money that banks must keep in their reserves to incentivize lending, and lower interest rates so that banks will borrow money from the Fed and re-lend that money to Average Joe.

The goal of each of these approaches is clear: flood money into the marketplace to grease the wheels of economic activity.

Contrarily, the Fed (or another body in charge of monetary policy) can sell bonds, increase reserve requirements, and increase interest rates to contract the money supply. It may do so when it senses that excessive inflation has taken hold or is imminent.

Some say that this whipsawing of intervention by the Fed only increases the peaks and valleys of booms and busts, and generally results in one consistent outcome: lowering the value of the dollar.

Cryptocurrencies As a Hedge Against Bad Monetary Policy

A Gallup poll shows widespread mistrust of the Federal Reserve by Americans. A historical accounting would suggest that mistrust is fair, as specific recessions and depressions can be linked on some level to the Fed’s monetary policies.

And when the ill effects of financial busts occur, you may find the Fed asking Congress for approval to fire up the money printers for this bank or that foreign government, further degrading the purchasing power of the dollar in the process.

Add in that the Federal Reserve is involved in the lending of money to other (economically failing) nations, and that Americans have no say in the matter, and it’s fair to see why you might consider some alternative to the dollar as a store of your hard-earned income.

Unlike the supply of dollars, Euros, and other currencies not tied to a scarce resource, cryptocurrencies are limited by nature. Unlike fiat paper currencies, they cannot be created at will. There is no governing body with unilateral power to manipulate the supply of Bitcoin as the Fed does with the dollar, or to lend mass swathes of cryptocurrency in a manner that will inevitably devalue each individual coin.

Proponents see cryptos’ independence from direct, legalized manipulation—as well as its inherent scarcity—as a welcome alternative to whatever a nation’s central bank is doing. It is no surprise that cryptocurrencies have become a popular hedge in the age of endless money supply growth, mounting debts, and general uncertainty about the global financial house of cards.

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Hopefully, this specific topic will keep you interest-ed.

What Is Interest?

The way to begin explaining interest rates is to first define interest. Interest is the amount that you are charged for borrowing money, or conversely the amount that you receive from lending money.

You may be subject to interest charges if:

• You have student loans
• You have a credit card (or 15)
• You have a mortgage
• You have a business loan
• You have a personal loan

You may also be the beneficiary of interest. You may collect interest on:

• A personal loan that you have made to a friend, family member, or colleague
• Savings that you have in a bank, as you are considered to be lending the bank the amount of your deposit
• Any bonds that you own
• Investments in money market accounts
• Funds in your retirement account(s)

From the perspective of the investor or lender, interest is good. You may view it less favorably if someone is earning interest off of your borrowed money. Either way, interest is woven into the fabric of the economy as we know it.

What Do Interest Rates Mean?

Interest rates are the percentage that you will be charged (generally on an annual basis) for borrowed money. Alternatively, it is the rate that you will be paid for lending money.

Wait, can’t I make interest simply from putting my money in the bank?

Yes, you can, but you are technically lending that money to the bank. Banks have the freedom to loan your deposit (and other customers’ deposits — you’re not being picked on) and earn interest for themselves through a process known as fractional reserve banking. This means that you are essentially lending your bank money so that they can lend it themselves, and you get interest for doing them the favor.

When discussing the rate of interest that you will receive as an investor or have to pay to a lender, you must be aware of how interest is calculated.

There are two primary ways of calculating interest:

1. Simple interest
2. Compound interest

When you are charged (or receive) simple interest, you pay interest on the amount of money that you initially borrowed or lent. So, if you lend $10,000 at a rate of 10% per month, you should receive $1,000 per month until the loan is paid off.

When you are charged compound interest, the rate of interest that you pay may vary from one pay period to the next, with the cost of added interest factored into your monthly (or yearly) payment. So, if you borrowed $10,000 at a 10% monthly rate, then your initial interest payment will be 10% of $10,000, or $1,000. If you do not make your interest payment, the cost of your loan will now become $11,000.

With compound interest, you will now be charged 10% of $11,000 (rather than 10% of the principal, $10,000) as interest for the following month. This means your interest payment will go up from $1,000 to $1,100. If you were paying simple interest, your interest payment would be $1,000 throughout the life of the loan.

Increase the sums being loaned or borrowed, and even the interest rate, and you have significant ramifications in terms of money being collected by a creditor or being charged to the borrower.

Interest Rates: Friend or Foe?

You may have a love or hate relationship with interest rates depending on your status as a borrower or lender, or the timing of certain investments that you have made.

If you are a net borrower, you may generally loathe interest, and compounding interest in particular. This may be especially true for those with one or more high-interest credit cards that they can never seem to pay down, student loans that seem to grow rather than shrink (despite graduation being far in your rearview mirror), or other types of high-interest debt.

If you are a lender, interest may be the additional revenue stream that you do not have to work for — handing over that initial loan was all you had to do. From Visa’s perspective, your debt is the loan that keeps on giving. But even as a lender or investor, interest rates can leave you miffed.

Imagine you buy a boatload of government or corporate bonds at a 3% interest rate, and the prevailing rate for such bonds goes up to 7% only a year later. You’re making money on interest, sure, but not nearly as much as you could have if you had locked in a rate of 7%.

Remember, at least you’re not the one paying the interest. And even if you are paying interest, keep in mind there’s always someone with more debt that you (hint: it’s your government).

Interest Rates, National Borrowing, and Cryptocurrency

Just like you, your representatives in government borrow money. They just borrow a lot more of it, so much so that the total costs of their debts (interest compounding by the millisecond, of course) is greater than $26 trillion — and that’s just America.

Say you had that level of debt on a personal scale. Your credit score would be virtually nonexistent. And yet, the dollar is based on the “full faith and credit” of a government whose run its would-be credit score through the Earth’s core long ago.

Those who see this framework as unsustainable have turned to cryptocurrency as a fresh slate. No mass-scale borrowing, no fiat currency, no unsustainable interest rates, just a peer-to-peer medium of exchange based on scarcity that once defined the U.S. dollar (but no longer does). If you’re fortunate, your Bitcoin may even compound before your eyes.

Interest-ed in owning your own coins? Start mining Bitcoin with us!