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A well-respected Economist once called the current banking model a scam. Why did he say this? And how did this give rise to the decentralized banking boom we are seeing today? The current state of the financial industry is a convoluted one for even the most learned individual on cryptocurrencies as well as banking. Regardless of the perceived opaqueness of the situation, there is a method to the madness. Several bright minds warned on the purpose of central banks and banking; the maintaining of the state of affairs in finance.
An argument made by Maloney detailed that placing the authority over the financial industry to a select few will definitely lead to a diminution in the purchasing power of the savings belonging to the labor force. Only a small number of people benefit from this system due to asset price inflation. This inevitably results in profit for those individuals at the top while the rest who are just trying to make ends meet suffer.
Following the worldwide monetary crisis and faulty finance transaction system around the world, people have begun to lose faith in the Fiat currency and centralized system of banking. The mainstream of the financial industry is slowly but surely starting to shift toward cryptocurrencies and digital assets. This has birthed a battle ongoing in the financial landscape between decentralized finance and centralized finance.
Now, there are more crypto investors than ever. The status quo is being pushed away by a more privatized and decentralized finance model. Why is that? This is because of the waning trust in the banking system. People always wondered if their banks were loyal to them or had their best interests at heart but it was never at the forefront of their concerns due to the fact that they had no other option. There was no real way to battle banks… until now.
Right now, the crypto adoption of several cryptocurrencies on the blockchain has pushed forward the alternative a lot of people wanted. Such mainstream adoption has destabilized the once thought to be untouched centralized system of finance. The banks’ unchecked power of old is now up in the air thanks to a large group of crypto investors entering the decentralized finance landscape (or Defi.)
BANKS NO LONGER HAVE A MONOPOLY OVER THE FINANCIAL INDUSTRY
Due to this newfound power in the hands of the average individual, there are many possibilities. However, crypto adoption is in direct opposition to the stability and trust people have in Fiat currency, and this rift has seen the Government try to downplay the usefulness of digital assets that are in the hands of player financial. Let us see the differences between Defi and Centralised finance to further elucidate the benefits of one over the other.
- Thinking of it at the rudimentary level, an individual that has a bank account is actually lending that money to the bank. Fractional reserve banking allows these banks to use most of the money you deposit as an account holder to another venture. Said venture can be open to credit default like we saw in the 2008 financial crisis.
- With Fiat currency, your buying power reduces by default. Due to the centralized system being dependent on inflation and currency debasement, it causes you to be liable to earn less than you had at the start of the year due to circumstances beyond your control.
Now unto the decentralized system of finance.
- In this financial system, crypto investors have total autonomy over their money in the form of digital assets. They can trade freely on sites such as redot.com or decide to store their cryptocurrencies for security purposes.
- There is a wide array of crypto coins that one can trade or store like bitcoin, Ethereum, Solana, and dogecoin. Since these are not hooked to the dollar, they could serve as a fence against inflation.
- Anonymity and privacy are certain while you trade or store your digital assets.
- Loans can be gotten instantly and individuals are able to bypass a lot of red tape regulations.
As you can see, Defi is more than ready to give centralized banking a run for its money. Mark Cuban made a great point when talking about loans in relation to Defi vs traditional banking. He said getting loans from banks nowadays is too tedious for the average guy or lady, but with decentralized finance, anyone can be an instant lender or borrower. Robert Breedlove, a financial analyst, used the principles of Game Theory to come to a conclusion that banks will be forced to be a part of the new system that the people are choosing if they want to still remain pertinent to the financial market.
Even those who were less sold on the idea of a decentralized model of finance have come over to the winning side. Crypto adoption has become a wave that threatens to leave traditional and old ways of finance in its wake. And with this, people search for useful crypto news sites and the best trading platform to trade their assets in order to grow their wealth and enter a more decentralized financial future.
A short while back, United Wholesale Mortgage informed the public that they will accept mortgage payments in bitcoin. Coupled with news talking about the first-ever bitcoin ETF (Exchange-Traded Fund), the crypto adoption will only skyrocket to new heights just like the crypto coins themselves.
That being said, we must not think that cryptocurrency is out of the woods yet in its tug of war with traditional means of banking. In a recent research survey, over 95% of the world’s executives are still in support of a centralized system of banking. Also, over $120 trillion is run through the banking system worldwide while the peak of cryptocurrencies stands at a measly $2.2 trillion.
Nevertheless, there is much reason for optimism. In the near future, growth will be abundant in the crypto market space for companies that wish to close the gap between the old and new systems of financing. First, though, we must welcome and accept crypto as well as the tools present for fluid business within the digital cryptocurrency space. Decentralized finance is here to stay, and that means banks will vie for your trust now more than ever. For the first time in our lifetime, we, the people, have the power. Any individual interested in cryptocurrencies should see that as a win.