Decentralized finance technologies can help lower these costs and build trust in the distributed blockchain-based system. For example, you can visit bitalpha-ai.com in case you are looking for a reliable trading platform. With adoption at a quick pace, the industry is taking a big step towards an economy with fewer intermediaries and more transparency.
In finance, these early adopters are usually very well respected, and the great strength of blockchain is that it provides transparency and trust in the system. Therefore, to understand why blockchain-based decentralized technologies are making significant financial strides, we must first look at how investors and companies currently work.
Current Status of finance segment:
Businesses have historically used intermediaries like banks to handle asset transfers and payments. For example, banks perform these functions as the third party to transfer assets (fiat currency) from one user to another for fees.
The process is slightly different for investors as they often only transact with a single intermediary (a fund manager). The intermediary consolidates their trades as an investment and then sells the investment to another investor (a pension fund).
Let’s use bitcoin as an example. The most popular bitcoin exchange for buying and selling bitcoins is Coinbase. However, Coinbase charges users 1% of their bitcoin transactions for what they call ‘payment processing’, which acts as a fee when you buy or sell bitcoin at Coinbase. In the future, businesses could use smart contracts (a decentralized application) to have similar features as famous cryptocurrency exchanges but with comparatively lower fees.
How can decentralized finance revolutionize the means of transaction in the future?
In the future, businesses and investors will have direct access to each other without an intermediary and be able to transact in a peer-to-peer free market where they both share equal rights. In addition, open-source codes will allow companies to create new products and services that are on-demand, equi-cost, and more secure.
Why do people prefer a decentralized finance system like bitcoin?
1. No intermediates:
The concept of decentralized/peer-to-peer finance will remove the need for an intermediary in the finance industry. There will be no need to have a bank, other companies, or financial institution. Instead, a person can hold a fiat currency, for example, USD, in their electronic wallet backed by bitcoin and other cryptocurrencies (we call this a vault). The person can then transact with another person for free and directly.
Bitcoin, the first decentralized finance, has some advantages over legacy currencies as well:
a) Money remittance fees are too high if you want to send money from one country to another, whereas Bitcoin transaction fees are meagre, around $2 – $3. b) Bitcoin can be sent by people instantly in a very secure way and with no central control, unlike the banking system, which takes 3 days to transfer money.
c) It is a very secure way of transferring money without fees and the management of other people
d) Bitcoin is borderless, so you do not need to worry about changing currency if you travel abroad.
Investors have also shown interest in cryptocurrency because of its safety over your investment. Because bitcoin itself is decentralized, there are not any banks that own or control it. It means that no one can lock your funds, freeze them for personal reasons, or hold an international wire from reaching its destination.
3. Lower transaction fees:
You can see that there can be significant advantages for businesses, investors, and users of finance by implementing decentralized finance technologies, and lower costs while executing trades are one of these advantages.
4. Support of Blockchain
In the blockchain, smart contracts form the essential public or private foundation, making the system more secure, reliable, and transparent; third-party verification is not needed as a contract involves two parties directly.
Another essential advantage of decentralized finance is related to the inefficiencies of the traditional financial system, which is very slow and inefficient than its counterpart Bitcoin Blockchain Technology because centralized ledgers (banks) are slower than distributed ledgers (blockchain technology).
5. Easier international access:
To transfer money from Spain to the USA, you must go through a complex process like opening a bank account, applying for a visa, filling out forms, and submitting documents. The world economy is based on fiat currencies, which have an intrinsic value. Cryptocurrencies don’t have an intrinsic value, but they are more secure and provide remote access. You can buy anything using cryptocurrencies at any time in any place without worrying about exchange rates or regulatory issues.