Can decentralized finance be the solution for our economic system?

decentralization, finance

Things are changing around us. Whether it’s finance, business or everyday life. These changes also concern centralization and decentralization.

Let’s take a look at a difference between centralization and decentralization and how they interfere with our lives.

Centralization and decentralization

While in a central system, central component is appointed and has assigned powers and responsibilities to perform certain steps. In a decentralized system, all components are delegated with more powers. They are therefore independent of central authorities and can work independently. (Distributed system, such as blockchain, will be discussed in another article.)

centralizace decentralizace

Basically, our planet is a decentralized system. Our current financial system is centralized. Cryptocurrencies such as Bitcoin are based on a distributed system.

Internet is the first decentralized platform

In the field of information systems, the first decentralized platform appeared with the advent of the Internet. From one point it has gradually spread through networks all over the planet, and although it has specific weaknesses, for example, in places with major optical links, it cannot be destroyed or shut down. In case of damage to one of the main lines, data can be transmitted via different routes.

And it was on this decentralized platform, which breaks down the borders of continents, states and power, that the first truly planetary communication system for the universal transmission of information of any kind was created.

Decentralization in finance

Now we need to use this same idea in our financial system. That is what digital currencies can provide. One of the possible soutions is DeFi, or decentralized finance.

While we now have a system of finance that is centralized under the name “central bank”, decentralization process is based on a network of service providers and lenders. So no third party, such as a banker, is needed as an intermediary in this system, regardless if you want to send money to someone, invest or borrow money, settle a contract, without space and time limitations, such as borders, time delays when waiting for approval, etc. 

Bitcoin has managed to popularize digital transactions, and thanks to that we also have other digital currencies available, each offering something new and interesting. Now decentralization needs to be pushed into other spheres of our lives to make the world more fair and secure for all parties.

Conclusion

Decentralization in general is an important step in all areas. There is a need to ensure greater security for all parties and to ensure transparency. The cryptocurrencies have started this and this trend will be continued.

Source: zive.cz

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