DeFi and cryptocurrency are disrupting the traditional financial systems that have long been in place. If you’re an investor, entrepreneur, policy maker or just someone who is interested in finance you may wonder what it means for the future of finance. Our handy guide explains the 4 reasons why DeFi and crypto will be the future of finance. Read on!
What Exactly is DeFi and Cryptocurrency?
DeFi, pronounced ‘dee-fye’ stands for decentralised finance. It’s a type of financial system that operates without centralised institutions like banks and other traditional financial infrastructures. It works on a peer-to-peer system not controlled by any centralised institution. Done all digitally, there is no bricks and mortar.
Instead, it aims to recreate traditional financial systems, like banks with cryptocurrency. This digital cash/currency is used to buy goods and services. Both DeFi and cryptocurrency are huge disruptors of the financial system as we know it. For the first time in history, a financial system is developing without a central authority. For centuries, we have lived in a world of centralised finance where central banks control the money.
5 Reasons why DeFi and Cryptocurrency are the Future of Finance
Like all new digital disruptors like AI and other technologies, DeFi and crypto including DeFi crypto projects are still evolving and so are still being developed. They are not going to replace traditional financial systems overnight. However, as technology gets better expect to see DeFi and Crypto to be the future of finance based on these five key benefits we have observed.
Power Away from the Big Banks
For so long the big 4 banks (Commonwealth Bank, Westpac, ANZ & NAB) have had the most power and say when it comes to determining and controlling many of the financial systems we currently have in place. Naturally issues of inequality, corruption and power politics come into play. Time and time again banks have demonstrated misconduct and unlawful practices. As a result, most consumers don’t trust them. DeFi and crypto operate without banks so the playing field is more equal, and finances are more transparent and democratic.
More Access to Finances for More People
Through DeFi and crypto you can expect to see more people having access to finances. The current financial systems we have in place limit a huge number of the population accessing finance. These are the ‘unbanked’. They include people with lack of funds, poor credit history, socio-economic oppression, political oppression and more. They cannot participate in our current financial systems and so are forced to look elsewhere for financial solutions. But with DeFi and crypto access is given to pretty much everyone democratising finance.
Cheaper and Faster Finance
Removing centralised institutions drastically reduces costs. After all, there are no bricks and mortar and other moving parts that come with these institutions. These institutions have lots of fees and charges. With DeFi and crypto, fees and charges can be lowered from the developmental end. Remember there is no middleman. This means that loans can be more affordable and quicker too. Credit cards could even be scrapped! In addition, DeFi systems are not time bound like your standard financial systems. They operate 24 hours a day, 365 days a year from anywhere in the world where the internet is available.
Finances are Moved Faster
With our current financial systems in place despite them going digital they can still be pretty slow and inefficient. For instance, moving money from one financial institution to another can be lengthy and slow even if it’s within the same city and country. If it’s international, then you can expect further delays. A standard wire transfer can take three full days to complete. Sometimes more if done over a weekend or public holiday. Through the highly advanced digital landscape that DeFi operates in you can expect to move finances much faster than what is currently available.