5 Things You Need to Know About Decentralized Finance

Updated: Feb 18


What is decentralised finance?

Finance is one of the most important tools in any economy. To grow and prosper, leaders must take effective financial moves that are designed to help with growth and development. In many countries, finance is enhanced through different modules and policies that are formulated with the immediate needs of the people in the economy taking center stage. However finance, being centralized in the hands of the ruling party, makes people relatively powerless until the next election, if they're lucky. In more cases than often not, the policies of those in government may not be favorable for the average person who depends on these policies to make a living.


Finance is primarily a system where means of production and distribution of goods and services are acquired and discharged through a unitary system of payment. There are various ways through which one could examine this context, and yet, the fact that finance gives power to some and takes from others remains a strong force to reckon with. The purpose of this review, however, is to shed more light on the process and details of Decentralized Finance.


DECENTRALIZED FINANCE


Unlike where finances are controlled by a limited number of people, decentralized finance allows for the development and use of platforms by anyone and everyone in a given economy. It is a process of trading relations between the seller and the buyer by eliminating the middleman. Decentralized Finance, or DeFi, is gaining prominence, thanks to technological advancements and the introduction of the blockchain and cryptocurrencies. As a result, financial security is being handed over to the average person.



5 THINGS TO KNOW ABOUT DECENTRALIZED FINANCE


1. It is open to all


While many transactions have relied on the instructions of finances run by and regulated by government policies, DeFi moves away from this. Instead, it allows anyone with an internet connection and a smartphone to process as many transactions as can be performed using provided platforms. This concept of transactions gives power to those who believe they have been extorted and overly controlled by government agencies hoping to make money off them. As a result, banks and other financial institutions without the power of technological advancements may bear the brunt of this sudden change.


2. Global service


With Fintechs popping up around the world, the possibility of modernizing financial transactions gets closer to fulfillment each day. Against the two billion adults who had no financial accounts as of 2018, decentralized finance will ensure that more than double this number would be able to be involved in financial transactions easily. Even the smallest and poorest communities can get access to funding and create accounts without the large costs involved in working through banks. Furthermore, DeFi hopes to reconnect the bridge between people, allowing them to do more with less.


3. Secured finances


In the past, many account holders were at the mercy of their account officers who always had control over their financial security protocol. Account owners have sometimes believed their privacies were being infringed upon. With the explosive growth of decentralized finance, security has been tightened and returned to the hands of account owners. There is a lesser risk of account hacks or failed transactions as well.


Finances have been made faster and more efficient with available resources at the disposal of users. For example, there are diverse ways through which clients can now send money to loved ones quicker than the old methods, making distances nothing more than just barriers to be scaled. If these security measures are beefed up in the coming years, there's no reason why decentralized finance would not overrun old financial institutions.


4. Challenges


Decentralized finance comes with many risks that experts are still looking into. Some of these include the possibility of large-scale investors influencing market trends, especially in crypto-related finances. When this happens, power turns to the hands of people who could (and have) bring the system crashing down with their actions. The capacity and volatility of blockchain technology also need to be examined more closely to determine if this technology is viable in the future of finances - will it continue to benefit everyone in the long-term.


Even though there are security measures in place to ensure that financial transactions are seamlessly carried out, there is no denying the magnitude of the actions of those who may take bold steps at bypassing these security measures. When that happens, there needs to be a standard procedure in place for eliminating these threats.


5. What's Next?


Decentralized finance is here to stay, no doubt. However, as the world transcends from the old system of financial transactions, there is the need to balance the outcome of this move with the past. In essence, there has to be a connection between finances, economies, and power. If finance is handled with soft hands, crashes will become common within the economy. In the same vein, blockchain technology, through the adaptation of cryptocurrencies, is a development that promises much more than is currently taking place. While many financial experts keep monitoring the trends to know what comes next, government policies are also being formulated to ensure that this does not lead to a breakdown of law and order. If the economy also falls into the wrong hands, there is uncertainty about what the future may bring.


Conclusion


Decentralized finance may certainly be the way forward in the new world. It is a very long ride towards actualizing the goals and objectives set out by financial experts monitoring the trends in decentralized finance but still, there is always a missing piece in any puzzle. This missing piece may be the key to unlocking financial breakthroughs like never before, but there may need to be some sort of regulatory body.


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