As fascinating as the transparency present within the blockchain space is, there are still instances where privacy and security protection are required - maybe decentralized don't always mean public.

 is the state of completing activities that cannot be traced or are not of public knowledge. The need for privacy is a universal principle that applies to many different areas.

Considering that the blockchain can be used for much more than just completing financial transactions, it may occasionally be necessary to validate transactions without disclosing all the details out of concern for privacy. Both permissioned and private blockchain have been developed as a result of the requirement for this kind of privacy.

Although Z-k proof is an innovation that can improve security on the blockchain, not all 

If you're a fan of layer 2 solutions and are continuously looking for protocols that will help you increase scalability and lower transaction costs on the Ethereum chain, chances are you probably know something about the Z-k proof. 

, which enables quicker completion of Ethereum transactions off-chain. This solution is also being leveraged by the 

 is short for Zero-knowledge proof. The idea is to validate and complete blockchain transactions using a 

, a type of Z-k proof. Transactions can be verified without any prior knowledge of the information being verified, just like its name implies. To put it simply, any unconnected data presented within the blockchain can be utilized to verify other data. 

Without knowing the details of the original solution, the goal is to confirm the authenticity of a solution provided.

For Z-k proof to function as one, important participants in a transaction must include a prover and a verifier. A prover confirms that they actually have knowledge of the transaction being initiated for - completeness, while a verifier certifies that the prover is who they claim to be in order to ensure - soundness. 

The Z-k proof is also useful when it comes to validating digital identity without disclosing too much personal information. To validate that a person is from a country that is authorized to access a platform, details like what time it gets dark can be asked. This way, the platform may determine whether or not a user is eligible to access it without requesting proof of their residency.

Z-k proof and the idea of decentralized finance seems like two contrasting concepts, somehow, these concepts have  both made their way into this piece.

Along with the requirement to trust in a centralized authority to conduct transactions, TradFi also has the drawback of continuously collecting user data and storing it on a centralized server. Users' personal information is put in jeopardy in the event of a breach on centralized servers.

While the peer-to-peer aspect of blockchains helps to establish a trustless environment for transactions, Z-k proofs eliminate the need to keep user data on a single server. The Z-k proof employs a different way to learn the authenticity of a user without necessarily requiring them to divulge personal identity, rather than asking for personal information that could compromise users' security in the event of a breach.

This not only increases the likelihood that people would embrace this technology, but it also raises the quality of transactions that are completed.

The blockchain actually operates in an entirely transparent manner; after all, that's what it was designed for. By requiring that the blockchain technology remain transparent, Satoshi Nakamoto had envisioned a system that permits checks and balances within the finance space. Simply put, if you have Vitalik Buterin's public keys, you can conveniently follow every transaction he completes on his Ethereum account from the comfort of your home - blockchain transparency.

It doesn't always have to be with a celebrity, even non-celebrities might not always approve of a system that monitors every one of their single activities. Without trying to undermine what blockchain aims to accomplish, it's agreeable that some transactions should stay anonymous. 

If TradFi is being replaced because it prevents specific types of transactions from being completed, then decentralized finance should at least support transactions that do not scream to everyone that you just made a transaction. 

Z-k proof can ensure that your donation to the charity or social cause of your choice will be fully anonymous and that no one will be tracking your every move.

 are two well-known blockchain projects that support privacy. These are privacy blockchain projects that enable users to conduct confidential transactions on the blockchain and uphold security on a typically transparent blockchain.

One of the popular security and privacy services founded on blockchain technology is 

. The platform allows its users to transfer money anonymously on the blockchain without the owner's identity being revealed. The platform's use, however, has been restricted in the United States. Sanctions like this send a message to all privacy- and security-focused blockchain projects, even if it is not the only platform that verifies private transactions on the blockchain.

The need for better security, one that goes much beyond what standard blockchain can provide, is a frequent theme in the application of Z-k proof.

A significant portion of the cause of one of the most recent hacks in the Solana community, which involved the 

, was connected to the wallet company's decision to store details of customers' private keys in plain text on a centralized server - 

The attackers of the Slope wallet incident, who made off with not less than $4 million, intercepted information provided by Slope wallet while it was being transported for an external audit that would be carried out by a third party service provider.

If a Z-k proof was used to add an additional layer of security, intercepting the information that Slope shared with other parties would be completely useless if they were unable to establish their legitimacy as the party entitled to access that information. 

Though an instance subjected to further research, a Z-k proof function may have prevented 9,000 Slope wallet owners on the Solana blockchain from losing their hard-earned money. 

Remember our example that confirms the validity of users residency based on the time it gets dark in their location before granting them access to a platform?

If this event were to play out, the idea would be to allow those whose residency matches the platform access it while excluding non-resident participants.

This particular Z-k proof will logically make use of the data of weather differences that has previously been filled into the system.

The system can determine the possibility that a user stays in a location that should have access to the platform, based on the answers given by users of the platform regarding the time of day it gets dark in their location, rather than requesting a personal document like proof of residency as with the conventional method of this type of verification.

Since it's conceivable for two separate countries to have weather that is similar, this approach may not always pinpoint the precise location of a user. However, it can at least confirm the correctness of that information and establish whether a person should actually access the platform.

This is only a hypothetical illustration; in a real-world application, the validation procedure for Z-k proof is generally more reliable and secure.

Despite the fact that it has been around for a long time, long before the development of the first blockchain product, Bitcoin, Z-k proof is still in its early stages - especially with blockchain developments. We're just scratching the surface and only starting to see the possibilities of such innovation.

To get the most out of Z-k proofs, consider the concept with an open mind and anticipate the concept's advancement.

iWrite

Z-k proof & Privacy - embracing privacy in blockchain

 is a buzzword within technical constraints; programmers and developers would usually identify what and whatnot they're making open source - usually nothing but jargon that screams "tech is boring," right?

In a naive moment, I could agree that concepts like these are mere go-to mentions for developers to appear smarter and busier than they actually are.

Chances are, you must have heard of open source too.

If this is the case, how then is a technical concept suddenly gaining traction with a broader audience? - which the majority of it isn't even in the technical field.

As a concept now popularized in blockchain technology, there's an increased need to understand what open source really stands for.

Since the idea of blockchain isn't just for people with technical knowledge, the non-technical audience to whom its possibilities are being pitched must also understand what they're getting into. Only then can interest be generated.

 and how it influences blockchain developments.

 is a concept that allows others to access the 

 of a software, modify it, and even replicate it to meet their needs. Typically, the modified or replicated version of the source code must be released under the same 

Aside from software development and coding, open source is all about building projects that typically allow diverse, qualified participants to contribute to the project.

One general license for accessing open source software and modifying it is the GNL general public license (GPL).

 share some similarities, these concepts are slightly different in definitions. The modern-day open source software, however, has features of free software.

Open source developments don't always start as one - they can be developed by a person, a private team, or even a centralized authority before being released for public modifications. Once the workings of a project are not limited to the founders alone, and the public is allowed to contribute and manage it, such a project qualifies as an open source project.

Agreeing to run your projects as open source means losing full custody/control over them -not in a bad way. In a way that can help the product experience maximum upgrade.  

Most known scientific research/findings have been open source and have improved the world. Imagine the group of scientists who discovered the cure to malaria kept such findings to themselves - the world would sure be a less enthusiastic place to be in if mosquitoes could end humanity.

Open source allows for open collaboration and contribution, so everyone with an idea of how to progress with research can contribute their bit.

Running open source does not necessarily disregard the effort of those who initiated a development; it only eliminates centralizing authority within that development. Ethereum, for example, is open source, but Vitalik, as one of the core founders, remains influential within the Ethereum community. 

Since people are naturally drawn to what serves their needs, open source projects will likely get the best upgrades as users can modify a project to a form with a better user experience.

Today's popular open source developments are the Linux OS, Mozilla Firefox, and VLC.

How open source influences blockchain technology 

The primary idea of blockchain is decentralization - that transactions are not verified by a centralized server but rather shared across multiple interconnected nodes that collectively sustain the network's security. 

By definition, decentralization depends on decision-making based on input from different participants; this makes the blockchain unique and helps it outperform TradFi.

Since open source shares a similarity with blockchain's decentralization, it's easy to see why it's the basis of blockchain technology. 

The earliest form of product showcasing blockchain technology is Bitcoin which is an open-source project. Ethereum, the second largest cryptocurrency by market cap, is also built as an open-source project. This is to say that the underlying technology used to develop both Bitcoin and Ethereum can be accessed by anyone, modified, and remodeled to fit their use.

If Bitcoin were to be owned by a centralized body that could control its operations, Satoshi Nakamoto's invention may probably not end up as successful as it has been.

Incentives also characterize open source blockchain. To maintain a network's security as validators or miners based on the consensus mechanism in a decentralized system, the network rewards participants. It's the reason 

It's not out of place to wonder how the blockchain can operate under an open source license since it's immutable by creation. While blockchain immutability means it can become extremely difficult to make changes on the blockchain, the concept of immutability is largely associated with verifying transactions on the blockchain and not how the blockchain functions. The immutability of the blockchain helps it to avoid double spending, verify transactions and maintain the blockchain integrity at all times. Blockchain's immutability will not also disrupt the adjustment to a blockchain's scalability concerns, as expected with Eth2.0 or other upgrades that could improve the network.  

Security is a great concern for blockchain; it's either people's money or data that’s on the line. Although, blockchain caters for security, it’s security has continued to be tested over time.

A wider adoption of blockchain technology can only be promoted by a substantial security system. Open source provides this type security since there are more people acting as watchmen. A developer can easily raise an alarm to other developer within a community if he smells foul play in a project's source code.

let's dive into why open source is all that important

- While the concept of open source itself is not entirely new, as it has, in fact, been promoted since the 1970s, it'll be the basis of most developments in the web3. 

The web3 is popularized as a creator's economy, which means the development that will follow through will most likely be targeted toward satisfying users. Some projects and companies leveraging blockchain technology have already started going the open-source route, and these types of projects will be the most attractive on the web3. 

Open source can completely aid interoperability in the web3. A number of the products that are currently web3-focused operate in silos. With every developer defining their version of the metaverse and web3 projects building on different blockchains, projects that are open source can easily be modified to become interoperable with another open source project. This way, the general user experience for web3 will be improved as people could basically move between blockchain products and protocols. 

Community is the strength of the web3; making people feel like they are a part of a project or have the ability to make decisions or are powerful enough to influence actions in a project naturally encourages them to feel like a part of it and encourages them to want to continue supporting it. We already see this play out in DAOs and some aspects of the certain NFT community.

 - Open source projects generally enjoy the best form of security, and the reason is simple; there are more people that care to monitor the project - and they can do this because they have enough access to the internal workings to monitor the project. One thing open source adds to its entire operation is transparency. The ability to hold a company, group or individual accountable for their deeds due to having access to their operations is only possible with open source. 

Projects that are constituted as open source projects will find it more difficult to indulge in fraudulent activities - as in the case of blockchain. Consider running a platform used for crowdfunding as an open source project; developers and users alike can easily spot some misalignment with how the code that powers the platform is written and can modify the platform to be fair to all. 

At the time of this writing, most of the security breaches and hacks within the blockchain/crypto space have been attacks on centralized bridges or exchanges that were largely closed source. Platforms that do not run as open source will be tasked with ensuring the security of their platforms and are likely to have oversights that could deter the security of that platform. By running open source, users of the platform can independently police the platform and constantly check for bugs within the platform's code, smart contracts, and other parts of its operations. This way, there will be reduced room for oversights as more people verify the platform's soundness. 

 - the expertise that comes with running open source projects will most likely not be found in organizing a private group. The diversity in thoughts and expertise present in open source projects bring a lot of technical and non-technical know-how at a low cost. This, in turn, improves the functionality of that project. 

Since open source projects do not operate in a confined space, there's the likelihood that more people that qualify to make adjustments to them will come across them. Who wouldn't jump on a product that allows them to modify it to fit their use, provided they are doing it correctly? 

Running an open source project on the blockchain also means quicker changes and faster solutions. Consider a hack that happens on a platform that has only one in-house developer. Even if the developer was to be aware of the hack, he could have difficulty dealing with it and combating it. Imagine the same hack on a platform that's run open source and has an average of 10,000 developers constantly monitoring it. The response to hacks will be faster, and considering that many people will contribute to combating the hack, a solution would come quicker. What one in-house developer lacks in strength, 10,000 other developers are willing to fill in. 

 - Incorporating open source in blockchain developments can make it cheaper to run blockchain projects, thereby increasing the likelihood of adopting the technology. 

If you've got a great product on the blockchain that people are willing to lose, you'll probably not have to worry much with some costs relating to upgrades and adjustment of codes, and maybe even security if you keep your product open source. Since your product attracts users, they'll most likely make the safety of the platform that they use their priority and always look out for activities that could hamper their user experience. Aside from scanning for bugs and fixing them, users can also take the product through a series of remodeling and upgrades that could improve the product's usability to meet their growing needs. 

Though there's been increased clamor for open source projects lately, open source isn't exactly a new concept, and it is far older than the existence of blockchain technology. 

The technology is simply a long-time approach to creating flexibility in a usually centralized development process, increasing security, allowing for interoperability, and reducing costs of operation - features not present with developments that aren't open source.

While blockchain companies are typically linked with open source, 

. Some of them have made part of their operations open source. If traditional companies are to remain relevant, they may want to start building like the web3 companies. 

It might not be feasible to think every single thing built in the web3 or on the blockchain will take the open source route as much as maxis that preach decentralization hate to admit, some developments would remain private and permissioned. Take the military leveraging blockchain technology, for example. While they can build many things on the blockchain, they will most likely be built on a private or permissioned blockchain. You'd be asking a lot to want military operations to be open source - it could carry grave security concerns. 

Considering growth isn't likely to be considered a bad thing, we'd have to see how embracing open source technology at increased length can be. As long as decentralization continues to be embraced, we will continue to see an improved approach to open source.

Open Source in Blockchain Technology

The adoption rate for the Ethereum blockchain is extremely impressive. Additionally, the blockchain represents a key frontier in DeFi with 

, which is 59% of the TVL in DeFi. Though Ethereum is looking to change its method of securing its network, learning about the unique features of the Ethereum blockchain is still never out of style.

Let’s take a glance at what keeps the Ethereum ecosystem functional. 

Ethereum virtual machine (EVM) is the Layer that helps 

 & other products built on the Ethereum chain to be possible.

EVM is used to build smart contracts on Ethereum. To build smart contracts on the EVM, the programming language required is Solidity. 

Just like the Android OS is the basis for building Android phones, the EVM is the basis for building Eth compatible decentralized applications.

EVM is such a great component of Ethereum that it is primarily in charge of the majority of the interoperability now available in blockchain. Cross-chain interoperability is made possible with EVM, considering that a number of interoperable chains are EVM-compatible.

It's important to note that EVM use goes beyond just the Ethereum chain. 

One of the specific features of Ethereum that has contributed to its enormous popularity is the smart contract. This idea was readily accepted since it is possible to build contracts that can automate on-chain operations in a decentralized version. Many DeFi functionalities can be automated with the use of smart contracts.

Smart contracts are required for dApps to perform properly. Smart contracts enable lending, borrowing, and swapping on the blockchain. Once written, it cannot be modified, and the majority of its program is transparent.

Ethereum blockchain is what acts as the storage of the Ethereum chain. Transactions processed via the EVM are completed on the Eth blockchain and are stored on individual blocks that make up the Ethereum blockchain. It's also possible to track activities on Ethereum via the blockchain.

The blockchain is a distributed ledger that keeps all on chain data within the Ethereum ecosystem. 

The Ethereum chain is kept in storage on the Ethereum blockchain. 

Take the blockchain as a record book for a shop. The record book has details of all the transactions that happen in and out of the shop. Some detailed record books will even have enough information to process the profit and loss of the shop. This is exactly the purpose of the Ethereum blockchain. Only this time, it's transparent, immutable and decentralized. 

The Ethereum network constitutes individual nodes and computers that make up the Ethereum ecosystem. The Ethereum network represents the nodes that makes sure the security of the network is up to par via a consensus mechanism. 

. Miners are those that validate transactions and maintain the security of the Ethereum blockchain in the PoW. Miners need to solve complex math problems to have the opportunity to add transactions into a block then add it to the blockchain. This is a way to keep out bad actors and maintain the integrity of the Ethereum ecosystem. 

The components that make up the Ethereum ecosystem is what makes it function the way it does. All of these components are able to interact together to make sure that Ethereum blockchain continues to remain effective. 

While Ethereum currently lacks in scalability, the Eth 2.0 merge is set to change the course of things. 

This is an explainer to help you understand the components of the Ethereum ecosystem.  I hope it's useful! 

Components of the Ethereum ecosytem - a quick explainer

Blockchain technology has been connected with cryptocurrencies and speculative trading for a very long time. One can only properly understand blockchain technology for what it is beyond cryptocurrency if they have a thorough understanding of it and a growing curiosity about it.

One of the many human activities that has been influenced by Web3 as a blockchain product is the 

A lot of concepts primarily available in TradFi have gained their place in DeFi and we have begun to see many more unfold. 

Conventional investors frequently invest in financial securities and asset-backed securities, and have the risk appetite for it. For these investors to embrace DeFi, the space will need to support their investment preferences.

The use of cryptocurrencies as digital assets today, has undoubtedly expanded from the days when investors would acquire them in the hopes that the value would rise before selling them to profit from market volatility to include asset classes that have stable forms but aren't exactly stablecoins.

An asset backed token or ABT for short, is a class of digital asset that is backed by an underlying physical asset. The price of the token and the value it garners are determined by the underlying asset or assets.

Physical assets used to back tokens include gold, equities, crude oil, diamonds, and other rare gems. 

Stablecoins are a form of asset backed tokens. They are generally backed by fiat currencies which keep their value pegged to that of the fiat currencies backing them. However, inflation and centralized control are very much a threat to this class of digital assets.

It's not uncommon to have assets like gold, oil, and even real estate back some conventional financial security. 

When a person owns this security, they are directly invested in the underlying asset. The value of the held security is directly impacted by changes in the price value of the underlying asset. Asset-backed tokens function in the same way as this.

Asset-backed tokens, which are also created using blockchain technology, are similar to regular cryptocurrencies except that they are backed by a genuine physical asset or piece of property that is unaffected by the volatility of cryptocurrencies.

Conventional investors consider investing in securities that are backed by fundamental assets, such as gold and oil, to be less risky and more lucrative than accepting a stake in the volatility of cryptocurrencies. These risk-averse investors are less inclined to gamble with cryptocurrencies.

By giving these investors an asset class they are familiar with, asset-backed tokens serve as the bridge that allows them to see the potential in the cryptocurrency and blockchain world.

If anything, asset-backed tokens will encourage more people to use cryptocurrency and leverage blockchain.

Since asset-backed tokens are widely regarded as securities, security laws are likely to have an impact on them.

Although asset-backed tokens have been around since web2, as the world adopts more transparency and digital representation in web3, more assets will be tokenized. 

The availability of liquidity is one aspect of asset-backed tokens that should be noted. The majority of the underlying assets supporting the most widely known asset-backed tokens are largely illiquid, making it difficult to convert them into currency. On the other hand, these assets can be exchanged for fiat and liquidity is made available by tokenizing them. Real estate, for example, is not a liquid asset because selling your property likely won't net you cash right away. You would actually need to put up the property for sale, fill out court paperwork, potentially negotiate, and sign documents before you could get your hands on money. Whereas, a token backed by real estate can be quickly converted into cash because there is typically liquidity to trade the token.

In a similar line, asset-backed tokens support automation because they are blockchain-based. This naturally gets rid of the manual processes you would have to go through to access the actual underlying assets. Purchasing a token backed by actual gold is all it takes to own gold. There are typically no paperwork or middlemen involved at all. In reality, you now possess gold, but you don't hold onto its physical form; instead, you possess a digital form of gold that is completely liquid.

Asset-backed tokens could be thought of as a digital means to invest in real estate. Tokens backed by physical assets can serve similar purposes as the physical assets without having to go through the hassles of paperwork, which would have come with owning some tangible assets. This use case is well illustrated by owning an NFT that represents owning a real-world drawing or piece of property.

Asset-backed tokens are another tool that startups can use to finance their ventures and raise money. Asset-backed tokens, which are akin to stocks, can serve as both a representation of a company's assets and a means for it to generate funding. Naturally, holders of these tokens will have an interest in the company's assets and, depending on the token's composition, may be eligible for capital gains.

Retail investors will have the chance to invest in a company if it makes an attempt to tokenize its assets. Due to the asset class these investments belong to, it is typically more difficult for the common investor to invest directly with large corporations or tangible assets like oil and gold. As a result, only high net worth individuals have the option to invest in these asset classes, which is unjust to the average person. Asset-backed tokens eliminate the unfair advantage high net worth individuals have in TradFi and give everyone the chance to gain fractional ownership of a business or other underlying assets.

Considering that blockchain technology is decentralized, everyone on the planet has direct access to it. The same holds true for items created using blockchain technology. This implies that by tokenizing its assets, a corporation has the chance to attract more investors. In a typical environment, having more investors would increase revenue.

Additionally, since asset-backed tokens are linked to the value of the underlying assets, you can exchange them with other people at market value. People are open to accepting these tokens as a form of payment for goods or services because of their liquid nature. Additionally, this makes it simple to transfer token ownership.

Asset-backed tokens will pique your attention if you've ever considered having physical assets in digital form.

The idea of asset-backed tokens will also be extensively explored in the metaverse, since we will all be the owners of several digital properties. The concept of asset-backed tokens will be used for the purchase, sale, and even fractional investments in these properties. By issuing fractionalized NFTs, NFTs already use similar procedures.

It's better to familiarize with asset backed tokens as they are unquestionably a part of the web3. 

Asset backed tokens offer a variety of opportunities not available with conventional finance and investing, but they also have their own set of potential pitfalls that you should constantly be aware of. Tokens with an asset backing are typically kept in digital wallets. To ensure the security of the tokenized asset, it is crucial that the wallet's owner is not compromised since the wallet's security is entirely dependent on them.

Asset-Backed Tokens - making room for risk-averse investors in web3

Ask any crypto enthusiast what DeFi is, and notice how confidently they will mention DeFi's peer-to-peer feature and other aspects of its decentralization, as well as why it is superior to traditional finance.

In reality, the optimism of 'DeFi believers' is well served. There was no system prior to now that facilitated traditional finance through digital processes without the need for a centralized body or third party.

DeFi was an early proponent of 'your life is in your hands' type of finance. Individuals could have complete control over their finances with DeFi.

As cool as the concept of DeFi is, its first stage simply cannot support widespread adoption due to its shortcomings. Though DeFi could provide users with access to lending protocols, liquidity on DEXes, and swap tokens with AMMs, it is still only a partial success.

To create a more robust environment that is fully DeFi functional as expected, adjustments must be made to correct the shortcomings of the first stage of DeFi (DeFi 1.0). 

 is the result of the anticipated changes with the current state of DeFi.

DeFi 2.0 is simply an upgrade to what we currently know as DeFi. Similarly, web3 is an improvement over web2.

DeFi 2.0 refers to the next stage of use cases that will be supported by DeFi protocols and products.

Though we're starting to see some DeFi 2.0 functionality, we're still not at the full extent of what it has to offer. DeFi 2.0 is still in the 'test stage,' as it has yet to achieve everything that is expected of it.

There is still room for growth and development in the context of DeFi as a whole.

DeFi is a part of web3 and will play an active role in its development. The metaverse, P2Es, and NFTs all have aspects of their makings that are relevant to DeFi.

We didn't all wake up on Independence day to find DeFi flying around everywhere. What we now call DeFi evolved over time.

Though it is now a buzzword, particularly in relation to blockchain and cryptocurrencies, DeFi rose from the need for a decentralized financial network that is not influenced by a third party.

The creation and use of Bitcoin was the first glimpse of what DeFi could be. Despite being successful in its own right; at the very least, it is the forerunner of other cryptocurrencies available today, it did not complete all DeFi functionalities.

The founders of Ethereum then went back to the drawing board and created Ethereum to finish what Bitcoin started. Ethereum was created to support smart contracts, which are the foundation of DeFi operations. Of course, Ethereum was a success, and it is widely regarded as the catalyst that gave birth to DeFi.

The summer of 2020 marks the beginning of widespread DeFi adoption. More DEXs, AMMs, lending protocols, and DeFi tokens were introduced, each with a piece of the pie that DeFi was enjoying at the time.

With more people participating in DeFi, it became obvious that Ethereum couldn't handle fast transactions at a reasonable fee. Other layer 1s such as Solana, BSC, and Avalanche were introduced to address Ethereum's scalability issue.

Aside from Ethereum's scalability, the first stage of DeFi had other issues that needed to be resolved. As a result, came DeFi 2.0.

Who says the initial stage of DeFi didn't give you access to liquidity pools? Yes, it did, but the liquidity pools were restricted to a single chain or protocol.

Many early-stage DeFi products operate in silos, similar to how their underlying blockchain is developed. However, more interoperable blockchains and solutions are being introduced.

Liquidity pools in DeFi 2.0 are configured to communicate with one another, and protocol users can access similar liquidity pools from other chains.

This will address the issue of a lack of liquidity in specific chains or protocols, which may delay a person's true DeFi experience.

Many of the operations on protocols in the first stage DeFi, while allowing for peer-to-peer decentralized communication by interacting with a smart contract, leave the protocol with the majority of decision making.

DeFi 2.0 will be more user-inclusive, allowing users to make decisions that will influence how the platform is used.

As of this writing, a number of DeFi protocols have their own native token, and the full implementation of DeFi 2.0 will mean that more protocols will have their own governance token, native to the protocol, which will be used to run the protocol as a decentralized autonomous organization (DAO).

A DAO's goal is to eliminate any remaining form of centralization in DeFi products, to put project management in the hands of the community, and to eliminate anything that impedes proper DeFi experience. 

Liquidity mining is associated with the method by which liquidity in the current stage of DeFi is generated.

Liquidity mining requires that a protocol reward a liquidity provider with LP tokens for providing their tokens as liquidity for an LP pair. The disadvantage of this method of liquidity mining is that liquidity providers are vulnerable to experiencing impermanent loss as a result of the depreciation in the price of the pair used to provide liquidity.

To address this, DeFi 2.0 will implement insurance to protect liquidity providers. While this does not guarantee that providing liquidity is risk-free, it does reduce the risk exposure associated with liquidity provision. Perhaps in the future, there will be a development to generate liquidity without the risk of temporary losses.

Protocols such as Olympus DAO have already begun to support a single pair liquidity provision as a DeFi 2.0 initiative, typically exposing the amount of risk a liquidity provider would have otherwise been exposed to.

The concept of open source in DeFi 2.0 is related to operating as a DAO where the community can make project decisions. While there are some similarities, open source is a concept that is aimed at developers and those who are familiar with the technical aspects of a project.

We’re starting to see DeFi projects that embrace open source developments. The goal is to ensure that the community has access to the project's code and can easily find and fix bugs that bad actors may have used to infiltrate a project's ecosystem.

Since there are more eyes looking into protecting a project other than the project’s dev team, it's less likely to be tampered with. This also contributes to the transparency that DeFi 2.0 is expected to provide.

There have been numerous hacks and breaches in the DeFi space, and one way to actively address this is to create a system in which policing is done by every user of a protocol.

A number of blockchains supporting DeFi rose from the need to address Ethereum's scalability issue and replace the PoW consensus mechanism with other, more appropriate consensus mechanisms.

Ethereum Layer 2 solutions such as Polygon, a sidechain, and Arbitrum and Optimism, roll-ups, all contribute to Ethereum's scalability and are expected to sustain DeFi within the ecosystem. Solutions like these were not available at the first stage of DeFi, and users were forced to either pay exorbitant gas fees or wait longer before completing a transaction. 

The anticipated Ethereum merge, which would see Ethereum transition to a PoS consensus mechanism, could also usher in the much-anticipated DeFi season, which is a big part of what DeFi 2.0 is currently associated with.

Other layer 1s competing with Ethereum include BSC, Tron, Avalanche, and Solana. The goal of all of them is to increase DeFi’s adoption.

Lending and borrowing in the current state of DeFi are very similar to lending and borrowing in the conventional system.

Borrowers must provide crypto assets worth far more than the loans they are assuming as collateral. This type of system discourages borrowers because they may not have access to as many options as DeFi does.

DeFi 2.0, as an improvement over the current state of affairs, is poised to embrace a system that allows the use of LP tokens as collateral. 

LP tokens are yield-rewarding tokens. By using LP tokens as collateral, a borrower may offer collateral that is not too expensive. The loan made to a borrower will be repaid over time by the income generated from the LP token. The borrower gets his LP tokens back after the debt is paid off.

This means that DeFi 2.0 will support a system that gives borrowers more flexibility and enables them to take out loans and offer collateral without as much concern.

A PoS consensus mechanism is used by the majority of DeFi projects, meaning validators must stake their tokens to protect the network while also collecting rewards.

Staking your tokens to validate a blockchain entails giving up access to the token for the duration of the staking period, even though the compensation is typically good.

Liquid staking solutions are already made available to people who want to receive staking rewards and still take part in other DeFi activities as a step toward a full DeFi experience.

Users can now engage in liquid staking thanks to protocols like Marinade and Lido, which weren't available during the first stage of DeFi.

Although DeFi is more frequently connected with finance, the idea will still be pertinent to web3 and its products.

A financial aspect of a fully functional web3 is unquestionably necessary, and the first stage of DeFi might not be able to provide it.

According to the idea of web3, many parts of its making are set to reward creators. DeFi tokens will be used as part of some of the web3 incentives.

Web3-related concepts that DeFi also influences include tokenization of NFTs, move-to-earn, play-to-earn, and rewards for using web3 socials.

New DeFi activities that are suitable with the impending web3 need will be bred and supported by DeFi 2.0.

DeFi 2.0 is a stage of DeFi that can be regarded as 'smart DeFi.'

Many of the ideas that DeFi 2.0 will discuss are already present in its current form. However, DeFi 2.0 will be an enhancement of these well-known ideas and offer a better environment to enjoy DeFi.

Despite the fact that DeFi 2.0 is beginning to take shape, it is still in the process of becoming fully operational.

DeFi 2.0 - a move towards full decentralization

Those who made the most money from holding Bitcoin probably had to HODL for years before they could profit. The highest profit ever made per Bitcoin held was when it reached its all-time high (ATH) of $68,000. While this is undoubtedly a good profit, cryptocurrencies are not only subject to holdings. Your crypto holdings can do a lot more if you look in the right places.

DeFi is short for Decentralized Finance. It is one of the advantages that the crypto space offers to its investors. Its distinguishing feature is the ability to initiate and complete financial transactions without relying on a central body.

DeFi is what makes it possible for you to buy a crypto token directly from a decentralized exchange without going through a centralized platform like Binance.  If cryptocurrency is ever to fully replace the conventional financial system, it must be capable of providing all of the services that conventional banking provides. It is, in fact, the reason DeFi was created.

Thanks to Ethereum, the token was created to be more than just a decentralized payment option and means of exchange, like Bitcoin was. At launch, Ethereum enabled DeFi functionalities, and users quickly began to benefit from it. Following Ethereum's popularity, more DeFi projects began to emerge, eventually flooding the crypto space with a variety of DeFi products, services, and perks.

The 2021 DeFi season saw a lot of DeFi products, both cryptocurrency and protocols. At the time of this writing, 

. A number of buzzwords that are now more common in crypto communities emerged as a result of DeFi. DeFi has its place in a variety of blockchain functionalities.

While there is nothing wrong with aiming for capital gains with your cryptocurrency holdings, it never hurts to learn about techniques to enhance your profits. Let’s dive into ways through which you can make more from your crypto holdings. 

 allow you to swap your tokens for other crypto assets or stablecoins in an instant at market pricing, because there is enough liquidity to let these swaps go through. This liquidity, however, does not just end up in a liquidity pool by magic. Liquidity providers provide liquidity pools.

By depositing your tokens into a liquidity pool, you can become a liquidity provider. The exchange or protocol to which you deposit your tokens as liquidity will then reward you for each transaction completed through the liquidity pool. Some exchanges allow you to earn their native tokens as well as a percentage of transaction fees from other traders using the liquidity pool, while others only let you benefit from transaction fees paid by traders.