As many individuals and institutional investors seek high-yielding opportunities, the Decentralized Finance (DeFi) sector continues to grow. They also recognize that blockchain has the potential to transform financial services by introducing revolutionary solutions based on accuracy, decentralization, scalability, and security.
Despite Bitcoin's impressive rebound, the price of ETH versus BTC more than doubled in the year leading up to the end of January 2021. Although the rise is due to Ethereum's upgrade to ETH 2.0, it also represents the growing interest in DeFi projects.
Here are seven main differences between DeFi wallets and centralized solutions to help you understand how they differ:
1. Control over funds
Non-custodial wallets are those in which the owner holds the private keys and has complete control over the crypto funds. Crypto exchanges, online wallet providers, and other organizations have centralized wallets elsewhere. As a result, third parties hold the private keys and have the final say on every deal.
2. Supported assets
A large number of assets can be stored in both centralized and DeFi wallets. Even, the key distinction between a centralized and a DeFi wallet is that the latter is primarily based on DeFi ventures. As most DeFi projects are based on Ethereum, any DeFi wallet will support ERC-20 tokens.
3. Investment features
In the DeFi market, DeFi wallets are the key to yield farming and staking opportunities, which is not always the case with centralized wallets.
4. KYC procedures
Users do not need to go through KYC (know-your-customer) procedures or exchange background information because DeFi wallets are non-custodial. Aside from that, centralized wallets are run by separate organizations that aim to adhere to the laws of their respective jurisdictions. Before withdrawing cryptocurrency funds, users are usually required to share their ID details.
5. Security
One of the most critical distinctions between a centralized and a decentralized wallet is stability. Wallets that are centralized are vulnerable to hacking attacks, which occur frequently. Such attacks and fraud attempts have been documented at a number of major crypto exchanges. Because the private keys are kept by the users, DeFi wallets are much more secure.
6. Compatibility
The majority of centralized wallets are part of a broader ecosystem based around an exchange network or other flagship product, which is why people use them in the first place. DeFi wallets, on the other hand, may be a part of the DeFi ecosystem. In addition, most DeFi wallets are web3 wallet compliant.
7. Fiat operations
While the DeFi wallet is the way of the future, people will still need to link to the fiat world. Many centralized wallets make it easy to convert cryptocurrency to fiat currency and vice versa. Although DeFi wallets do not always allow fiat transactions, Eidoo does, but users must first complete the standard KYC verification process.
Conclusion
Users can communicate with the DeFi space using DeFi wallets. They have more benefits than centralized wallets because they already have all of the regular features