Networks#

  • A lot of material is going to be about networks
  • In the blockchain/de-fi world a network is either a bunch of computers – proper servers, but also phones and tables and such or a bunch of people who use these computers to trade, mine, bet and such
  • These people or computers are referred to as “nodes”

Blockchain#

  • Blockchain is the name of technology - computer programs executing a bunch of well-known algorithms
  • Bitcoin, Ethereum, Solana are different networks that use Blockchain
  • Each of these networks uses a specific token – Bitcoin is a token, the NFTs, mem coins, stablecoins - all these things are tokens
  • Some algorithms have to with cryptography, which is why people refer to blockchain tokens as “cryptocurrency” or just “crypto”

P2P (peer to peer) and “De” in DeFi#

  • Blockchain is a peer-to-peer network; all peers are equals – they have the same rights on the network
  • No central authority = DEcentralized network
  • This is where the “De” in De-Fi coming from

The “FI” in DeFi#

  • The networks we just mentioned allow people to create apps that use tokens to do “proper” finance activities – running exchanges, trading, lending, earning fees and such – hence “Fi” in De-Fi
  • So you now have a decentralized network of equal peers
  • Anyone can create an app and anyone can use apps
  • Which is really why the opportunities of De-Fi are limitless

Basic finance concepts#

  • Given that De-Fi is still about finance, there are a few finance concepts you need to understand for now
  • They are: exchange, liquidity and pool
  • De-Fi deals with payments, loans, interest fees, trades and such - and you’d eventually need to get fluent with those

Exchange#

  • Take a “Currency Exchange” kiosk at any airport - it buys and sells currency
  • You can buy 77 pounds for 100 dollars (1.3 exchange sell rate)
  • Or you can buy 96 dollars for 77 pounds (1.25 exchange buy rate)
  • The difference between the rates is called “spread” and this is how exchanges make money
* Bob came and gave the Exchange $100. Exchange has given Bob 77 pounds
* John then came and gave the exchange 77 pounds. Exchange has given John $96
* Exchange just made $4 and kept its 77 pounds
* Stock exchanges and all other exchanges work the same way

Liquidity#

  • The airport currency exchange kiosks can trade many currencies
  • This means they have enough actual paper cash for each currency right there in the airport, so that they can meet the demand of travelers
  • They probably reload daily
  • Having enough stuff to trade is called liquidity
  • In finance, the major banks are called the “sell side” because they sell liquidity, meaning they have (or can get) stuff for other Wall Street firms to trade
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