decentralized finance

Decentralized finance: An emerging alternative to the global financial system

The current global financial system is characterized by hubs of power and control. Generally speaking, the closer you are to those hubs of power, the more access to the financial system you have. The structure of the system results in inequality.

This post is about an ongoing series of data-driven infographics done in partnership with Visual Capitalist. Check out the first part of the series “The 7 major flaws of the global financial system.”

But there are alternatives to the current system that could foster competition and lead to a level financial playing field.

Interestingly, there seems to be a perfect storm brewing that could create disruption in the financial services industry and usher in a more efficient, cost-effective, and equitable system.

That perfect storm consists of the massive distribution and use of smartphones, more ubiquitous internet access, and the maturation of open and distributed financial infrastructure like the Bitcoin blockchain.

The most recent Visual Capitalist graphic, which is the second of a three-part series, explains the six defining features of the new forms of tech-driven finance:

Permissionless: Anyone in the world can connect and use a permissionless service regardless of wealth, employment, or banking status because there is no central gatekeeper.

Decentralized: With decentralized services, there is no single point of failure, which increases security by dispersing the potential attack surface (in other words, individual wallets or even entire exchanges can be compromised without impacting other parts of the network).

Trust: Decentralized services are designed to function in a peer-to-peer manner, which can eliminate the need for a consumer to trust an intermediary (which again is more secure and requires fewer moving parts).

Transparent: Another characteristic of today’s decentralized financial tech is that transactions can be audited on public blockchains, which can foster a sense of protected openness.

Censorship-resistance: Since the underlying transaction data that makes up the blockchain is not controlled by any company or government, and because it is globally distributed without a single point of failure, public blockchains provide a tamper-proof record of transactions and a verifiable version of history.

Programmable: Decentralized financial applications that are built on blockchain are flexible in that they can be programmed to execute a number of functions and contracts — making all kinds of new financial engineering and services possible.

The attributes of decentralized finance will make banking, payments, credit, and investing more cost-effective, efficient, and secure. These factors, in turn, will make finance more accessible, customizable, and controllable across the entire planet.

Check out the full story from Visual Capitalist:

Courtesy of: Visual Capitalist


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