A few years ago, the Decentralized Finance (DeFi) movement – the emergence of an alternative financial infrastructure built on blockchain technology – might have seemed like a far-fetched future concept.
However, as global crypto adoption accelerates, offering a more secure and stable currency option, the reality is that this industry-defining transition is quickly coming to the forefront. Here, Kristjan Kangro, Founder and CEO of Change, one of Europe’s leading cryptocurrency investment platforms for retail investors, explores what a world without banks, as we traditionally know them, may look like.
For years now, leading crypto authorities have pointed towards a future in which traditional, centralized financial institutes – such as banks, building societies and the like – are replaced by an alternative financial infrastructure built on top of public blockchains.
In its simplest form, decentralized finance comprises a system by which financial products are available on a public blockchain network without a middleman, such as a bank or other financial institute. In this way, transactions are based on a secure model of validation written on blockchains, thereby negating the complicated procedures, checks and security requirements associated with traditional financial requirements.
Here, the remit is to put our global financial system into the power of all. For too long, centralized money and its value has been dictated by the few at the top. But this approach entails major flaws – a gross lack of transparency, restricted accessibility for less ‘bankable’ regions, and manipulation potential.
It’s only more recently, though, that the DeFi movement has come to court much greater attention amongst leading economies and financial powerhouses around the world.
DeFi on a global stage
Undoubtedly, the recent economic upheaval has played its part. With the past year serving to remind us all of the market volatility and instability present within the centralized system, it has set the stage for the DeFi movement. Now we’re witnessing more mainstream audiences consider crypto adoption as a smarter, safer currency of choice.
We’re seeing this acceleration mirrored in the wider commercial world, with the likes of Mastercard and BNY Mellon recently announcing new Bitcoin initiatives. At the same time, Amazon remains at the centre of speculation around plans to add crypto as a means of payment.
Change’s growth also supports this trend. This year’s second quarter saw a stark 112% increase in verified customers compared to the same period the year before. Additionally, most of our community are increasingly expressing an interest in seeing greater DeFi functionality on our app.
Add to this the general embrace of concepts like Open Banking and fintech innovation, and the picture is clear – people and businesses are ready for a new form of finance.
Cue the growing case for DeFi in providing the disruptive force needed to modernize financial services and drive growth.
We can attribute this greater drive in adoption to many key commercial benefits alone. Fundamentally, the DeFi model enables total accessibility simply because anyone can access its tools regardless of citizenship, location or status. Going forward, however, the acceleration of DeFi will open the world of finance up to a wide range of new possibilities, so businesses can securely trade in areas they may not have been able to before without third-party approval.
Another huge advantage is the speed and ease at which DeFi transactions take place. Previously, a business owner might invest hours in bank manager meetings and other investor relations to maximize capital potential. Equally, any new source of capital would be subject to numerous checks and anti-laundering procedures. Because blockchain technology eliminates the need for an intermediary to process, validate, or authenticate transactions, investments are built purely on factual data – thereby optimizing productivity and driving efficiencies.
Further gains come in the form of futureproofing. With widespread permanent working-from-home and the end of many bricks and mortar establishments, the typical businessperson is now much more accustomed to operating from the convenience of their home. The DeFi movement aligns to this, creating ease and making tiresome transactions a thing of the past.
It’s also important to note that this architecture offers increased financial security because it ensures total transparency and full transactional history. What’s more, it’s immutable – whereby it is nearly impossible to change a transaction once written. Investors worldwide are now afforded a set degree of standardization regardless of where they are, their local economy, and even a worldwide pandemic.
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A bankable alternative
Over recent years, the continuing rise of cryptocurrency has shown the potential for decentralized finance to become a crucial part of our way of life. But this is just the beginning.
The minority can no longer dictate global finance as we move forward. Instead, the industry must become more open, transparent, accessible, secure and available to everybody to better serve our evolving world. As part of this, the decentralized movement will continue to emerge as a bankable alternative to the traditional financial model.