Blockchain and Decentralized Finance (DeFi): Challenges and Future Potential

Anish Naidu Basa

International Journal of Scientific Research in Computer Science, Engineering and Information Technology, 2024, vol. 10, issue 5, 829-843

Abstract: This paper explores decentralized finance (DeFi), a fast-growing area powered by blockchain technology that offers a new alternative to traditional financial systems. DeFi removes the need for intermediaries like banks, making transactions more transparent, accessible, and often cheaper. This shift not only reduces costs but also helps improve financial access, particularly for people who are underserved by traditional banking systems. Key elements of DeFi, such as smart contracts and oracles, play a central role in automating processes and enabling peer-to-peer exchanges without needing middlemen. Despite its advantages, DeFi faces several challenges. Smart contracts can have security vulnerabilities, oracles may not always provide accurate data, and there is little consumer protection in place, which raises risks for users. Furthermore, DeFi’s decentralized and often anonymous structure creates regulatory difficulties, especially when it comes to complying with anti-money laundering (AML) and know-your-customer (KYC) standards, which are crucial for ensuring financial safety and preventing illegal activities. This paper examines these issues and proposes potential solutions, such as decentralized oracle networks, regulatory tools embedded within DeFi platforms, and improved scalability techniques. These solutions aim to enhance DeFi’s security while maintaining its core decentralized benefits. The paper concludes by discussing the future of DeFi, stressing the importance of balanced regulations that protect users without stifling innovation. Ultimately, DeFi holds the potential to reshape global finance, making it more inclusive, efficient, and accessible.

Keywords: Decentralized Finance; Blockchain technology; Traditional financial systems; Smart contracts; Financial intermediaries; Financial inclusion; Peer-to-peer exchanges; Transparency and accessibility; Oracles and security vulnerabilities,; Anti-money laundering; Know-your-customer (search for similar items in EconPapers)
Date: 2024
Note: Article URL: https://ijsrcseit.com/home/article/view/CSEIT2410434
References: Add references at CitEc
Citations:

Downloads: (external link)
https://ijsrcseit.com/home/article/view/CSEIT2410434 Article URL (text/html)
https://ijsrcseit.com/home/article/download/CSEIT2410434/CSEIT2410434 Full text (application/pdf)

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:jbh:ijsrcs:v10:y2024:i5:id:374

Access Statistics for this article

More articles in International Journal of Scientific Research in Computer Science, Engineering and Information Technology from International Journal of Scientific Research in Computer Science, Engineering and Information Technology
Bibliographic data for series maintained by Pankaj Sharma ().