Decentralized Finance – A Remarkable Advance Over Traditional Financial Services
A global financial crisis and subsequent economic recession have caused many governments to contemplate a return to more traditional, centralized forms of finance. Decentralized finance has been growing steadily as an alternative, safer, and ultimately more efficient alternative to today’s more opaque, centralized financial services. By removing the need for banks to hold large sums of money that they must continually lend out in order to maintain their operations, create a cleaner and more trusting financial system, and one which is much more easily accessible to everyone. Cryptocurrency can provide the means to do this.
The idea behindcrypto finance is fairly simple. Instead of conducting all of one’s financial transactions via the use of a bank, the entire process is done via a smart contract. These smart contracts are executed through cryptosystems which facilitate the instant transfer of currency from one international location to another, as well as the conversion of one currency into another. There are several different types of cryptography used to accomplish this, including those that are referred to as the “blockchain”, or those that employ “Proof of Stake” or “Futures Contracts”. Each type of cryptography has its advantages and disadvantages.
One of the major benefits of using cryptosystems to achieve privacy is the fact that it creates what is known as a distributed ledger. This means that each transaction that occurs is reflected on multiple ledgers which are all completely visible to anyone who is paying attention. In many cases, the ledger which is used will be a near replica of the official ledger from the country where the company conducting the trading is located. What this means is that anywhere in the world that a customer may be located, their financial activities will be represented on the Crypto Currency exchange itself. Because no two views of the ledger will ever be identical, this provides a level of security and accountability that traditional forms of financial systems simply don’t offer.
The benefit of using Cryptocurrency instead of a traditional exchange based financial system is also a cost benefit. Most traditional markets are controlled by a few large corporations, which have very large overhead charges which can drive up the costs associated with running the market. Even the smallest market that uses such methods can be costly since there are a great number of overhead costs associated with it. With the use of cryptosystems, many of these costs are eliminated. This includes things like commissions and fees paid to brokers and other parties involved in the process of trades, as well as overall financial costs such as rent and utilities.
Many companies are leveraging the power of the distributed ledger technology for the purpose of providing real time financial solutions. Through the use of smart contracts and the open-source software that they run on, they are able to provide an automated solution to a number of financial problems that have plagued companies throughout history. One problem which has plagued the financial industry for years is scalability. Due to the nature of someICO’s, the network itself is not able to grow in size significantly without some type of drastic overhaul. By leveraging the power of the distributed ledger technology, these companies are able to scale their business without having to change their entire business structure or lose clients, since the platform itself is able to adapt and grow.
Another benefit of utilizing Cryptocurrency is the ability to avoid some of the problems associated with the traditional finance system. Many traditional business models such as the traditional stock market and the futures market are notoriously volatile and unpredictable. There are so many factors which can cause a company to fail, which often leads to large losses for investors. In contrast, a decentralizedICO system offers a highly reliable and secure form of income generating investment. This is because unlike mostICO’s which allow for investments in a wide variety of business ventures, a Cryptocurrency only allows investments in digital assets.
This also eliminates the inherent problems associated with the traditional financial system and the introduction of a central authority. The central authority would force its chosen issuer to issue its own currency, which would in turn affect the stability of that particular currency. With a Cryptocurrency based on digital assets such as smart contracts and digital signatures, there is no need to introduce a central authority, since this process is completely self-balancing. This makes it far less likely that there will be political interference in the ownership and trading of Cryptocurrency which many people fear could occur if a central authority was ever introduced.
Besides the increased reliability and security offered by a decentralized finance system there are also other benefits derived from its use. Since the infrastructure required to operate the system is completely peer-to-peer, this also reduces the potential for security or reliability issues. Also, since the infrastructure is based on open-source software, this also decreases the cost of maintaining the system since there are very low costs associated with operating the network. Also, since most transactions are made online, the risk of exposing the system or its users to high-risk activities is greatly reduced, therefore increasing overall security. Lastly, due to the fact that most transactions are done online, time frames for transaction validation are extremely accurate. This significantly decreases the possibility of fraudulent activity and increases the speed in which a creditor’s requests for payment can be processed.