Catching Up to Crypto

CHAPTER 12New Layer to the Internet: Decentralized Finance

Ethereum proved that blockchains could be more than just currency networks – they could build a new layer to the internet. But what does that mean exactly? As you undoubtedly know, the internet started out with very basic functions of text and image display. Over the years and as technology has improved, additional “layers” have been added to include more functionality. But despite all the growth of the past few decades, we still don't have a financial layer. A few companies like PayPal and Stripe have developed some solutions for transferring value online, but these are centralized third‐party services that have to be integrated with applications – they are not natively a part of the application's infrastructure. Smart‐contract platforms allow for the financial layer to be built into the applications themselves as a core part of their infrastructure. There are a few major benefits to this approach. Not only is it more decentralized and secure, but it also opens up new possibilities for features and functionality. With applications building on top of the same financial layer, they can now connect and collaborate in ways that were never possible before. This idea is known as “composability,” and sometimes industry insiders use the phrase “Money Legos” to describe how some financial applications are able to plug into one another and build on top of each other.

The concept of a “new layer to the internet” has been thrown ...