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Since the emergence of cryptocurrencies and DeFi, many investors and consumers may be asking why all the fuss is being made and why their local currency continues to be so widely accepted. Why then do people pick cryptocurrencies? Who would invest in cryptocurrency, and why?
Many brand-new solutions for current applications are provided by blockchain. Applications in finance and supply chain are two of the most intriguing. Blockchain can change the current financial system and establish itself as the gold standard for supply chains. Decentralised finance (DeFi) can fundamentally alter the world in a wide range of economic spheres.
Many of the problems with the current financial system, like unbanked access to it, can be solved via DeFi. DeFi has the potential to replace a lot of current procedures in the coming years while also providing better security and greater transparency.
In actuality, there are several ways DeFi and cryptocurrency can benefit the world.
Why Decentralised Finance Is Better Than Traditional Finance
Traditional financial systems accomplish single transactions between parties via banks and intermediate systems. This could cost money and take several days. A decentralised financial system is one in which transactions happen directly between two parties without the use of a middleman. Smart contracts allow for (almost) instantaneous and cost-free transactions.
DeFi’s infinite nature is one of its key benefits. Anyone with a smartphone and internet connection can access these financial services. For the underprivileged and unbanked, this will change banking. All of a sudden, the value may be safely stored. With the press of a button, you can invest anywhere globally using security tokens.
Decentralised finance is fundamentally based on asset tokenization. Tokenization is the process of transforming value into a digital representation, such as an asset. Anyone with access to a DeFi application (i.e., anyone with a smartphone and an internet connection) will be able to trade, borrow, sell, invest, etc., once this value is made public using distributed ledger technology. Global asset trading will be revolutionised; as a result, creating new markets and trading opportunities. Greater global accessibility, liquidity, competition, and transparency are the goals of tokenization.
How Cryptocurrency Can Replace Traditional Finance and Benefit the World
1. Transaction Speed
There are a few easier alternatives to transfer or receive money or assets from one account to another if you want to send money to someone abroad. The majority of transactions are handled in 3-5 days at banking institutions. Typically, transfers take at least 24 hours. In three days, stock trades are resolved.
But one benefit of trading cryptocurrencies is that it can be done quickly. When the network confirms a block containing a transaction, it is fully settled, and the money is made available. In fact, with great crypto exchanges like Breet, you can send or receive cryptocurrency in less than five minutes.
2. Transaction Cost
Compared to traditional financial services, the cost of transactions in cryptocurrencies is quite low. For instance, domestic transfers frequently cost $25 or $30. Even more expensive transfers can be made internationally.
Trading digital currency is typically more affordable. But be aware that demand for blockchain technology may drive up transaction costs. However, median transaction fees are still cheaper than wire transfer fees, even on the busiest blockchains. Sometimes, transactions with crypto are even free.
Anyone can use cryptocurrencies. An internet connection and a computer or smartphone are all you need. There is no identity verification required; therefore, creating a bitcoin wallet takes much less time than opening an account at a conventional financial institution. neither a credit nor a background check. Through the use of cryptocurrency, those who lack bank accounts can access financial services directly. There are a variety of reasons why someone might be unable to or choose not to obtain a typical bank account. People who don’t utilise traditional banking services can easily conduct online transactions and send money to their loved ones, thanks to cryptocurrencies.
Because trading cryptocurrencies does not require opening an account with a financial institution, you may maintain your anonymity. Transactions are carried out anonymously. This indicates that, despite the fact that you have a unique identity (wallet address) on the blockchain, no personal data about you is stored there.
In many situations, having this much seclusion may be advantageous (both benign and illegal). However, every transaction information becomes public as soon as someone links a wallet address to his identity. There are some techniques to further conceal your transactions, similar to other privacy-focused coins that emphasise the private aspect of cryptocurrencies.
A public blockchain ledger serves as the platform for all bitcoin transactions. Anyone can utilise tools to learn more about a transaction’s specifics, including the recipient’s location, the time it took place, and the amount that was received from their wallet address. How much cryptocurrency is kept in the wallet is visible to everybody.
This degree of openness aids in lowering fraudulent transactions. It may show that money has been delivered and received or that you have the necessary funds to complete a transaction.
Investments in cryptocurrencies may provide diversification in portfolios from more established financial assets like equities and bonds. Although the price volatility of cryptocurrencies has not historically been as high as that of equities and bonds, prices do not currently seem to be associated with those of other markets. Excellent portfolio diversity is made possible by this.
You can obtain returns that are more steady by mixing assets with minimal price correlation. Cryptocurrency holdings may increase if a stock portfolio decreases, and vice versa. Nevertheless, given the high volatility of cryptocurrencies in general, your portfolio’s overall volatility may increase if your asset allocation is overly tilted in favour of cryptocurrencies.
The world economy is about to undergo a profound transformation due to cryptocurrency and decentralised finance. Decentralisation will restore privacy and trust thanks to blockchain technology, enabling people to design a future where open, safe public systems are once again in charge.
Cryptocurrency and DeFi lower the cost of doing business, increase investment opportunities for everyone worldwide, and allow the unbanked to participate in the economy. By giving people and organisations more authority, we can help them rely less on the “too big to fail” banking giants that caused so much damage during the Great Recession. Decentralisation is the way of the future, and the banking industry is no exception. With these unique features, cryptocurrency and DeFi can benefit the world greatly.