Everyone talks about the internet as the great equalizer. Humanity is on a single network for the first time in history. People from all over the globe can access the same content, interact with each other, collaborate, and partake in the same market.
With that in mind, there’s no longer a need for representatives and intermediaries. After all, we can cast our votes, represent ourselves, and even directly control our finances with the right platform.
This last idea, DeFi (decentralized finance), is a relatively new concept. It blew up due to the success of cryptocurrencies and blockchain technology over the last few years. Now, it seems like it might become the inevitable future of the financial world.
Here are the top seven reasons some financial experts believe this is the case.
1. Borders are no longer an issue
One of the big advantages of decentralized finance is that international transactions are no longer a big issue. Centralized finance is often nation-based, meaning sending money back across borders costs more and takes more time.
This could be an issue in an era when many people work for companies abroad (as remote workers), buy from international retailers, or send remittances home. Since DeFi offers a simple, elegant, and pragmatic solution to this problem, it might be adopted sooner rather than later.
This way, everyone with access to the internet and a basic crypto wallet is the same. With such an egalitarian approach to finances, we may finally approach a market state where everyone can express their brilliance on the market.
Another thing to remember is that exchange rates of fiat currencies tend to be quite expensive. This means that travel people might have difficulty getting the best value out of their funds. With crypto, this will never be the case.
2. A chance of early adoption
Once an asset explodes in value, it’s too late to make serious money by investing in it. This is the truth that more and more people are coming to grasp.
Everyone who has witnessed how Bitcoin grew in value 20 times in just 12 months must have had a certain level of remorse that they didn’t buy in time. If they could go back in time, this is probably one of the first things they would have done. It may be too late for them to do this; however, if they could find promising DeFi coins, they might stand a chance of emulating this success.
Just a promise of early adoption could do wonders for decentralized finance. For a trend to pick up, people need to recognize it and commit to it. By offering this kind of financial incentive, this adoption seems more likely.
Moreover, most cryptocurrencies are tied to an algorithm with an actual practical value. For instance, a coin like Ecoterra works to innovate and encourage recycling, a trend that is bound to see a rise soon. Coins that rely on beneficial practices like this or going solar have a much higher chance of sticking around.
3. It’s much faster
In conventional finance, there are just too many intermediaries. As a result, you get a much quicker system. Traditionally, handling things more centrally was supposed to create a system with a sturdier oversight; however, it also created a narrow bottleneck.
Today, blockchain technology makes ensuring the system’s reliability much easier, even with much bigger market caps. With such a decentralized ledger, you can increase the speed without compromising security. This was a major concern we can now finally cross off the list.
Also, while some banking systems are available 24/7, this is an exception rather than the norm. Since cryptocurrencies are decentralized and automated, it makes no difference whether it’s 1 AM or 1 PM. This means there’s no need to wait for the next morning to send or receive funds.
It’s also not just about the speed; it’s about uniform speed, no matter where you are. Previously, we talked about how decentralized finance has no borders. It means that the speed of transferring and receiving funds is the same, no matter where you are.
4. Superior transparency
While some people find a central authority trustworthy, others know just how easy it is in these scenarios for someone to tamper with records of transactions. With no central authority, this will be impossible.
Simply put, not a single party has access to tamper evidence in this way, which means that all the dealings are immutable. Due to the blockchain, no one can tamper with the records or delete them. There’s always proof of any transaction, which you can obtain with the right authorization. Knowing that it’s out might deter some of the shadier dealings that would have happened with a centralized bank.
When talking about transparency, it’s impossible to skip the topic of smart contracts. The way this works is simple and ingenious. One party can set up the contract and pass it to the next. Once the next party signs, the contract is automatically in effect. This only happens when you meet the required conditions. These contracts are verifiable and incredibly transparent.
5. More control for individual users
Just because there’s no central authority doesn’t mean there’s no control whatsoever. There’s usually the same amount of control; the only difference is in whose hands it is. With DeFi, you’ll have more control over your finances as an individual user.
Simply put, there are no intermediaries. You hold and directly control all your funds. No bank or any other kind of centralized institution exists between you and your assets.
Another example is non-custodial wallets. In this scenario, you have full control over your funds. This is in direct contrast to conventional (centralized) finance, where you have a custodian to take care of the key in your stead.
With conventional accounts, you really don’t have that much customizability. Well, DeFi protocols are highly programmable. This means you can set them up however, you see fit. It even gives you the option to tamper with features.
6. Great for investors
With no intermediaries, higher transparency, and availability to anyone across the globe, DeFi might revolutionize the investment world since they have a greater influence over the protocol. As we’ve already said, a greater level of control counts. One of the greatest fears for the investors is losing control over their investments.
Decentralized finance allows for instant peer-to-peer trading of assets. As a result, you get a system with a much higher liquidity. Buying and selling assets is a lot easier this way, which also means you have an easier job diversifying your portfolio.
It also helps that the fees are lower and that the bureaucratic procedure is not as long and tedious. All of this brings an investor closer to the solution a lot faster. All they have to do is decide and commit their funds to an idea. While it sounds simple, it’s a procedure that centralized finance can mess up through its outdated procedures.
For a centralized financial institution to grow, you need to scale up the bureaucratic apparatus keeping it together. With decentralized finance, it’s a much simpler procedure. With more people using it, cryptocurrencies and blockchains behind it get more computing power. It’s an autonomous system with incredibly scalable properties.
When you consider that we’re facing an incredible population boom and that two-thirds of the world have access to the internet, scalability may be far more important than you think.
The benefits provided by DeFi are just too good and too numerous to be ignored
In the end, decentralized finance is just more convenient. It saves you money by providing lower fees. Now, it can provide these lower fees because it doesn’t have to pay for the expensive (and, according to some, completely unnecessary) bureaucratic apparatus of centralized finance. Other than that, it’s faster, more transparent, and has quite a bit to offer to individual users and companies alike.