The concept of cryptocurrency is something that is foreign to many people. Most have heard of bitcoin or other similar digital currencies, but they don’t really understand how it works. Despite this ignorance, digital currencies are becoming such a popular commodity that even governments and businesses, such as Facebook, are creating their own cryptocurrencies.
While this is seen as a very volatile form of currency, as its value has dropped by 84% from the end of 2017 to the end of 2018 Bitcoin has been steadily rising in value since then. Many are seeing that these digital currencies can be used to help create a decentralized architecture known as decentralized finance or DeFi.
Top Experts Agree This is a “Thing”
Before diving into the concept of DeFi, it is important to understand that some of the most important influencers and experts within the market are touting the benefits of decentralized finance. The people from this infographic come from all areas of the industry, from traders, to founders, to developers, and most are seeing how beneficial this would be.
It is great that these influencers see the benefits, but many have reservations about cryptocurrencies. It starts with the fact that there is a large segment of the population that has no idea about how these things work exactly. Virtually all experts will tell you that if you do not understand something, then it is to your advantage to stay out of it. It is this kind of advice that is curtailing enthusiasm for cryptocurrencies in general and the DeFi idea in particular.
So, What Is DeFi?
What has made digital currency so popular is the idea that they are outside governmental control. Because governments can influence fiat currencies, such as the US dollar and the euro, the value of these currencies is subject to moves made by government leaders. This is not true with cryptocurrencies.
There is no central authority acting upon digital currencies such as bitcoin or Ethereum. These are controlled by large networks of computers, and investors can purchase, trade, or sell these currencies without any government intervention whatsoever. This helps to create a greater degree of privacy and anonymity.
What many are espousing now is that traditional financial instruments can be replaced by using this same type of decentralized architecture. As Alex Pack, managing partner at Dragonfly Capital explains, “The goal of DeFi is to reconstruct the banking system for the whole world in this open, permissionless way. You only get that shot every 50 years.”
There Are Great Benefits to the System
One need to look no further than Venezuela to see why this is becoming a popular concept. Within the last five years, the country has moved from being one of the richest due to its vast oil reserves to being one of the poorest. A steep drop in oil prices coupled with an inefficient and poorly run government turned the vast riches of the country into economic squalor. Inflation now exceeds 1 million percent. This is the direct result of terrible policies by the central bank and government leaders.
It is these kinds of failures that have led many to support the concept of the DeFi. Instead of worrying about how political decisions can influence such things as savings, loans, insurance, and trading, these all fall out of the purview of governments, no matter where they may be located. If a person has access to the market through the Internet, they would be able to do business with any organization.
The Technology Is in Place
The best part about this idea is that the technology is in place. The reason why many of these influencers are supportive of the idea is that they have either invested in or directly worked on the technology necessary to make this idea a reality. Through blockchain technology, all servers, businesses, and individuals would be able to connect using this secure technology.
Blockchains not only protect against hacking but provide real-time resolution of all financial matters. Customers would be able to have transactions processed immediately, and they would be able to monitor all stages of the transaction from purchase all the way to delivery. This would mean that a person who purchased a garment in one country would be able to track the delivery of that item every step of the way.
The benefits seem limitless. No longer would a person be forced to work with banks in their area to get a loan to purchase a house. The decentralized system would open the door for them to deal with any financial institution on the planet, helping them to get the loan at an interest rate that works best for them.
The truth is that this opens the door for a financial system that could be free from political intervention and policies. Now, the question only remains if this can succeed without government leaders trying to stand in the way.