Are you wondering how a Decentralized Financial System will change the fiat money management system?
Decentralized Finance (short for DeFi) manages bitcoins and altcoins on blockchain technology in order to control the world’s economy through decentralized networks.
DeFi came about with the aim of democratizing traditional financing with the Ripple of new decentralized blockchain networks in a virtual environment incorporating peer-to-peer (P2P) relationships. This way, DeFi can provide traders with complete financial services in a virtual environment, from conventional banking, mortgages, and loans to obscure and aggregate contractual alliances and digital assets’ trading.
Centralized Finance: The Today’s Dilemma
Today, centralized systems, administered by governing organizations (sometimes governments themselves) and gatekeepers manage almost all financing aspects, including banking, trading, and lending. Ordinary consumers have to work with the financial intermediaries to access everything from car loans, house acquisitions, and mortgages to exchange stocks, shares, and bonds.
In the United States, the Federal Deputy and the Securities and Exchange Commission (SEC) are such regulating bodies who set the standards for global centralized banking and financial organizations including brokerage communities and Congress changes over time.
In the end, only a few opportunities remain there for ordinary consumers to enter into conventional capital and digital financial facilities directly. These consumers cannot just ignore intermediaries such as exchanges, lenders, and banks, who are acquiring the gross ratio of every commercial and banking transaction in terms of profit. The standard is simple; we (consumers) have to pay in order to play.
Decentralized Finance: The new wave
DeFi encounters this compacted financial structure by relieving intermediaries and custodians of responsibility and empowering ordinary people through peer-to-peer transactions.
Rafael Cosman, TrustToken’s CEO & co-founder, reported that DeFi unbundles traditional finance. Decentralized Finance takes the most crucial parts of the trade that exchanges, banks, and insurers do today, for example, borrowing, acquiring, lending, and trading, and puts them under ordinary people.
Here is how it might turn out. Nowadays you can keep your investments digitally and earn 0.5% interest on your savings. The bank turns your savings to other investors with an interest of about 3% and takes off 2.5%. With Decentralized finance, consumers lend their investments directly to other investors, reducing those lost profits by 2.5% and getting the total return on their money by 3%.
Still, you need a debit card associated with DeFi apps to transit your money in order to keep your P2P payments free from intermediaries.
DeFi Runs on Blockchain
Blockchain technology is based on a decentralized network, disbursed public ledger, so it records economic transactions in PC code.
Besides, the blockchain disburses all events of DeFi software. It has a replica of the general public ledger where it keeps transactions in encrypted code. This way, it secures the machine by presenting customers with anonymity along with bills verification and a report of asset possession that is (nearly) impossible to modify via means of fraudulent activity.
In addition, there is no intermediary or gatekeeper handling the machine. Transactions are tested and recorded through blockchain, where complicated maths troubles and new blocks (in chains) of transactions fix the chain.