This is article 6/8 in Part I of our series How To Build Wealth and Grow Crypto Assets and Income by Staking and it will explain why decentralization is crucial in finance.
Key Takeaways
- Decentralization reduces transaction costs
- Decentralization increases access to financial services for everyone
- Decentralization increases efficiency
- Decentralization improves transparency
- Decentralization reduces the risk of fraud
Does decentralization really matter?
Web3 uses blockchain technology to remove the need for central authorities.
You take your money with you and don’t need anyone else to provide you access to it.
It has eliminated the need for intermediaries and opened up finance to all. In this article we will share the benefits of a decentralized financial system and answer the question:
Why is decentralization important in finance?
Benefits of decentralization in finance
1. Reduced costs: Banks typically charge fees for processing transactions and lending money. Decentralized finance platforms can eliminate these fees, transactions are much faster, and there is no single point of failure that could bring the system down.
There is no “too big to fail.”
The UST stable coin and Terra blockchain collapsed in June 2022. It evaporated wealth quicker than any time in history. Yet, blockchain adapted and lives on.
2. Increased access to financial services: Decentralized financial services provide access to those who are underserved by traditional finance. For example, people in developing countries or with low credit scores may have difficulty getting loans from banks.
Blockchain platforms can provide them with access to loans and other financial services without requiring them to go through a bank.
Plus, it is less expensive. That allows people everywhere to improve their standard of living.
3. Increased efficiency: The ACH and Federal wire system rely on manual processes, which can be slow and expensive. Money transfers can take days and fees can be substantial.
FedNOW system launched in July 2023 and will substantially speed up traditional money transfer, but DeFi platforms are fully automated, faster, cheaper, and transparent.
4. Improved transparency: Decentralized finance platforms record all transactions on a public ledger, making it easy for anyone to see what is happening. That helps reduce fraud and makes it easier to track money.
The narrative that crypto is for criminals is just false. Nike, Prada, Starbucks, Reddit, Twitter, and Disney have all adopted blockchain technology. The proper narrative is that criminals, like Sam Bankman-Fried used blockchain technology to take advantage of people.
If FTX, BlockFi, Voyager, Celsius, Bittrex, and Coinloan were decentralized open-source protocols on a public blockchain, they never would have been able to take advantage of people and steal their money. Customers would have prevented it by withdrawing their funds well in advance.
5. Reduced risk of fraud: Blockchain technology is a secure and tamper-proof way of recording transactions. Once the validators that record transactions agree and place that information into a block on the chain, it is there forever. Attempting to change information on a blockchain ledger requires ridiculous effort and money.
Decentralization may have prevented the 2008 financial crisis too. People watching the public blockchain would have seen the excessive risk-taking by banks and blown the whistle.
It’s important to point out that decentralized blockchain transactions are public, but still anonymous.
Decentralization can help to reduce costs, increase efficiency, improve transparency and give you increased control over your finances.
However, the technology is still new. More will be revealed, but you are on the leading edge. Congratulations!
Our next article just might be the one you have been waiting for, “How newbies should begin investing in crypto.”
Frequently Asked Questions
Decentralization takes the power away from the few and gives it to the many. Control and decision-making is distributed to the network participants. Transparency reduces the risk of fraud. Transactions are less expensive than in traditional finance and decentralized blockchains are widely accessible.
It is nearly impossible to correct a mistake because transactions are immutable. Once data is recorded, it is not easy to modify.
Decentralization can be improved when token holders are active and vote on network proposals. The participants govern the system. Their feedback matters.
Bitcoin is the most decentralized cryptocurrency. There are over 100,000 Bitcoin nodes and miners.
As of 2023 Uniswap is the largest decentralized exchange.
The fastest growing decentralized cryptocurrencies include Ethereum, Solana, Polygon, Avalanche, Binance, Polkadot, Cosmos, and Cardano.
Nothing we say is financial advice or a recommendation to buy or sell anything. Cryptocurrency is a highly speculative asset class. Staking crypto tokens carries additional risks, including but not limited to smart-contract exploitation, poor validator performance or slashing, token price volatility, loss or theft, lockup periods, and illiquidity. Past performance is not indicative of future results. Never invest more than you can afford to lose. Additionally, the information contained in our articles, social media posts, emails, and on our website is not intended as, and shall not be understood or construed as financial advice. We are not attorneys, accountants, or financial advisors, nor are we holding ourselves out to be. The information contained in our articles, social media posts, emails, and on our website is not a substitute for financial advice from a professional who is aware of the facts and circumstances of your individual situation. We have done our best to ensure that the information provided in our articles, social media posts, emails, and the resources on our website are accurate and provide valuable information. Regardless of anything to the contrary, nothing available in our articles, social media posts, website, or emails should be understood as a recommendation to buy or sell anything and make any investment or financial decisions without consulting with a financial professional to address your particular situation. Blocks United expressly recommends that you seek advice from a professional. Neither Blocks United nor any of its employees or owners shall be held liable or responsible for any errors or omissions in our articles, in our social media posts, in our emails, or on our website, or for any damage or financial losses you may suffer. The decisions you make belong to you and you only, so always Do Your Own Research.
