An Emerging Alternative to the Global Financial System

Decentralized Finance: An Emerging Alternative to the Global Financial System

March 6, 2019  By Frank Cardona

The global financial system has created massive wealth, but its centralized nature means the spoils have gone to the people who are best connected to the financial centers of the world.

As global inequality continues to rise, how can wealth building tools become more accessible to the rest of the global population?

Luckily, technological developments and their rapid adoption make this the right time for a new decentralized financial system to emerge:

The Internet: 3.9 billion users by the end of 2018

The proliferation of smartphones: Two-thirds of the unbanked have mobile phones

Digital banking: over 2 billion users by end of 2018

Bitcoin and Blockchain: the emergence of new public blockchains

Today’s infographic comes to us from investment app Abra, and it highlights how public blockchains could help to enable a decentralized finance system.

What is Decentralized Finance?

Decentralized finance describes a new decentralized financial system that is built on public blockchains like Bitcoin and Ethereum. After all, Bitcoin and Ethereum aren’t just digital currencies — they’re foundational open source networks that could be used to change how the global economy works.

There are six primary features that differentiate public blockchains from the private networks used by governments and traditional financial institutions:

Permissionless: Anyone in the world can connect to the network

Decentralized: Records are kept simultaneously across thousands of computers

Trustless: A central party isn’t required to ensure transactions are valid

Transparent: All transactions are publicly auditable

Censorship Resistant: A central party cannot invalidate user transactions

Programmable: Developers can program business logic into low-cost financial services

In such a financial system, users will have access to apps that use public blockchains to participate in new open global markets – but how would this shape the global financial system for the better?

The Potential Impact of Decentralized Finance

Here are five ways that decentralized finance will have an impact on the world:

 1. Wider Global Access to Financial Services

With decentralized finance, anyone with an internet connection and a smartphone could access financial services. There are a variety of barriers that prevent access in the current system:

 Status: Lack of citizenship, documentation, credentials, etc.

Wealth: High entry-level funds required to access financial services

 Location: Vast distance from functioning economies and financial service providers

In a decentralized financial system, a top trader at a financial firm would have the same level of access as a farmer in a remote region of India.

2. Affordable Cross-Border Payments

Decentralized finance removes costly intermediaries to make remittance services more affordable for the global population.

In the current system, it’s prohibitively expensive for people to send money across borders: the average global remittance fee is 7%. Through decentralized financial services, remittance fees could be below 3%.

3. Improved Privacy and Security

In decentralized finance, users have custody of their wealth and can transact securely without validation from a central party. Meanwhile, in the current system, custodial institutions put people’s wealth and information at risk if they fail to secure it.

 

To continue reading, please go to the original article here:

https://www.visualcapitalist.com/decentralized-finance/

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