DECENTRALIZED OR TRADITIONAL FINANCE?
WHOEVER HAS IT TOUGH WINS
DeFi, is a hot topic in the world of Blockchain and cryptocurrency. It’s a financial alternative -open and global- to an opaque, tightly controlled system held together by decades-old infrastructure and processes.
The reason is simple: it makes it possible to use financial services without the involvement of intermediaries in whom to place trust. Can we call it an open source financial services system? Yes, as it does not require authorization and is within the reach of everyone, it operates without any central authority. These rules, in full Blockchain style, are completely transparent.
DeFi products offer financial services to anyone with an Internet connection and are largely managed by their users. The latter maintain full control over their resources through P2P and dapps applications.
One of the market needs that DeFi has entered is the demand for liquidity. It introduces you to global markets, offering alternatives to your local currency -or banking options- especially to those who are isolated from the current financial system.
As these new services are implemented on blockchain, individual points of failure are eliminated. Data is recorded on the blockchain and spread across thousands of nodes, making censoring or potentially shutting down a service a complicated undertaking.
DeFi vs. traditional finance
Traditional finance relies on institutions like banks to act as intermediaries and courts to provide arbitration. Another significant advantage of such an open ecosystem is the ease for people -of all backgrounds- to access it. Because the traditional financial system relies on intermediaries making a profit, their services are typically absent from locations with low-income communities. However, with DeFi, costs are greatly reduced and even low-income people can benefit from a wider range of financial services.
Lack of access to financial services can prevent people from being employable. Corporations imprint on our minds the idea that in order not to mismanage one’s money like lending to risky borrowers, one should rely on them.
There are aspects of traditional finance that DeFi aims to decentralize and improve more and more:
_Financial services can keep you from getting paid;
_A hidden cost of financial services is your personal data;
_Centralized governments and institutions can close markets at will.+;
_Trading hours are often limited to the business hours of a specific time zone;
_Money transfers can take days, as, markets close because employees need breaks;
_Financial institutions are closed books: you can’t ask to see their loan history, a record of their assets under management, and so on.
DeFi would enable a more open financial system and could potentially prevent precedents of censorship and discrimination around the world. There is a thriving crypto economy out there, where people can lend, earn interest and more. If successful, DeFi will take the power from large, centralized organizations and put it in the hands of the open source community and the individual. Companies have begun to broadcast their salaries to their employees in real time. Some people have even taken out and repaid millions of dollars worth of loans without the need for any personal identification.
