Blockchain gives a plethora of solutions for already existing applications. Of all the applications of blockchain, supply chain and finance are the most exciting ones. 

Blockchain will turn out to be the backup mechanic for the supply chain, and it will highly influence the current financial system. Decentralised Finance, also known as DeFi, will be a game-changer on the world in several different economic dimensions.

DeFi can address almost all the limits of our current financial systems, including offering the unbanked access to the existing financial system. For the years to come, DeFi can give improved transparency and flawless security while transforming many of the traditional processes.

DeFi For Dummies

DeFi essentially implies a fresh monetary system that is built on public blockchains.

You may certainly know Ethereum and Bitcoin as cryptos, but the fact of the matter is they are large, open-source networks that enable anyone to create applications that allow the financial activity to occur without the involvement of centralised bodies.

The reason behind this is simple: Almost 1.7 billion people currently do not have access to financial services. Though the current infrastructures have been instrumental in creating wealth, very little has ultimately gone to this excluded population.

Decentralisation literally means that there is no flaw, as unique and similar records are kept across the uncountable number of computers through a peer-to-peer network. Plus, it is risk-free, permissionless, and is open to anyone regardless of their wealth or even their geographical location. And, while a bank or a payment processing business can close the account of an unsavory customer, blockchains are censorship resistant.

At the beating heart of the journey toward DeFi are decentralised applications, also known as DApps. These plug-and-play tools make it easy for just anyone with a smartphone to access financial services faster, easier, and at lower costs.

How Can Decentralised Finance Be Applied?

Pundits say DeFi has the potential to turn around the lives of the world’s unbanked people, and make life more affordable and easier for everyone else.

Let’s take the remittances market as an instance – in which foreign workers send millions of dollars across borders to their relatives, loved ones back home every month. The fees they face for these transactions are often biased; stealing into their modest revenue. DeFi services have the power to slash these costs by more than 40% or even 50%. Not only does this give an incentive for a worker to earn slightly more and be more performing, but it will also support small companies and economies on the other side of the world.

DeFi can also help address other pain points such as loans. These days, it can be almost impossible for the unbanked to borrow cash, often because they have bad credit records and history with banks. DeFi platforms help connect lenders and borrowers directly, negate credit checks, and allow digital assets to be collateralised.

Other types of DeFi include stablecoins, a sort of digital currency that protects consumers against the volatility of crypto. 

Tokenisation means real-world materials such as art, commodities, and property can be owned and traded on a blockchain. Decentralised exchanges, on the flip side, mean users hold on to their resources at all times – negating the risk of cyber attacks, a scourge that several centralised platforms have been battling to shake off.

Why Is DeFi Starting To Make Noise Now?

Technology has become more affordable, meaning a higher number of the population has access to the tools required to take advantage of DeFi.

As of January 2019, nearly 57% of the global population now utilises the internet regularly. Though there is much more work to do, compare that number with 2013, when it was just 35%. 

In the second hand, smartphones are becoming considerably less and less expensive, meaning they are more affordable for the world’s poorest. In fact, recent research from the World Bank states that ⅔ of unbanked citizens now own mobile tools; the selfsame technology they need to start exploring the DeFi world.

Public blockchains are also starting to be more sophisticated, and inventive DApps are being unveiled every day. 

What Are The Risks Associated With DeFi?

Some problems lie ahead for DeFi’s proliferation.

Although it could have a huge impact on the lives of millions of people, it’s an undeniable fact that DeFi solutions have not come to gain public awareness. 

The endorsement in the crypto world has been very low. According to a study by the Cambridge Centre for Alternative Finance back in 2018, there are only 25 million verified crypto users worldwide. When you compare this with the 1.7 billion unbanked people, it’s obvious there’s a lot of work to be done.

It’s also worth recalling that although DeFi applications make it possible to welcome millions of people to its platforms, the public blockchains they lean on may lack the ability to process their demands. 

Volatility in crypto is still another issue. Although stablecoins have been seeking to solve this, the hurdle of regulatory compliance keeps on looming large. Facebook unveiled ambitious plans to create a stablecoin called Libra. Yet the body behind Libra has faced staunch resistance from American politicians, regulators, and financial institutions. 

Lawmakers have shown concern that it could undermine the U.S. dollar and put the global economy into disarray, whereas banks fear it could be the source of a shadow banking system.

How Can DeFi Develop And Grow?

Tackling regulatory hurdles is a crucial step in supporting decentralised finance thrive.

However, a big inconvenience in achieving consensus leans on how countless DeFi platforms are working independently of one another, triggering a fragmented market. 

To compound the issue, there are countless governments with poor attitudes toward crypto and blockchain. Many countries have prohibited digital currencies in their entirety, with the likes of India threatening to send those caught dealing in crypto to prison for 10 years.

Establishing connections between DeFi platforms, making new partnerships possible, and engaging in discussions with decision-makers who can help the crypto technology reach the masses, is nothing short of vital if blockchain and crypto are going to become a compelling alternative to the status quo. 

Recap’

Decentralised finance is designed to fundamentally turn the world economy around. With blockchain technology spearheading the front, decentralisation is set to bring back privacy, trust, and let individuals create a future where a transparent, secure, public system is in control once again.

DeFi will allow the unbanked to join the economic system. It will negate the cost of doing business, and it will give new investment opportunities for anyone across the globe. 

It will also empower individuals and businesses and make them less reliant on the ‘too big to fail’ financial institutions that brought chaos during the Great Recession. The future is decentralised, and that certainly applies to the financial sector. You can make that future happen very soon if you join the movement. Join Alacrity now!

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