We have lived under a financial system that has exercised so much control and power over our finances. And this control is, by extension, to our lives. Consider an ordinary teacher who receives his salary via her bank. Then, without notice, the teacher realizes that the bank has suspended his bank account. Also, mining this digital asset is not the only way to acquire it. Trading Bitcoin on exchange platforms like Immediate Edge is more energy efficient and a way of owning Bitcoin.
Someone else sent some large amounts of money to the teacher's account, raising suspicion in the bank. So, the bank suspends it as it investigates the matter. The teacher cannot access his money because of this. The bank didn't consult him before deciding to suspend the account.
The short allegory above represents the reality of centralized finance. Control is vested in one or a few entities to the detriment of the majority. Bitcoin came to address this fundamental flaw with decentralized finance.
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Centralized Finance
Before fully understanding decentralized finance, we need to look at centralized finance first. Centralized finance is what characterizes our conventional financial system. In centralized finance, financial institutions like banks and credit card companies hold and use people's money primarily for profit.
Consider fiat money. The central government controls fiat money. It decides when to print, release, and remove money from the economy. No other entity has such authority. If the government orders the central bank to print more money and release it to the economy, you can do nothing.
Now consider the many intermediaries in the centralized financial system. Your bank charges you for services, including accessing loans for which you have to pay interest at the rate set by the bank. Your credit card company charges a fee every time you use a credit card. Overall, a few entities control the centralized system.
Bitcoin and Decentralized Finance
Bitcoin uses blockchain technology, which is a decentralized and distributed digital ledger. For every transaction in the blockchain, numerous nodes spread across the world see ad verify it. Then it is recorded in a block, and subsequent transactions are added to that block chronologically. The record cannot be altered in any way and remains permanent.
Therefore, blockchain removes the centralized control by a few entities and distributes this control to multiple users in the network. No government can control Bitcoin, including the quantity in circulation. Bitcoin payments are peer-to-peer transactions that do not involve any intermediaries.
In peer-to-peer transactions, banks or credit card companies do not feature. Bitcoin has made transactions faster and cheaper because of this. For example, while you had to wait for days and pay high costs for sending money abroad through a regular bank transfer, you can do so within minutes and at a negligible cost with Bitcoin.
Future of Decentralized Finance
Decentralized finance is the future of global finance. Centralized finance is losing grip, and sooner, it will become irrelevant. Governments, banks, and other financial institutions have already embraced blockchain technology. For example, governments are considering introducing digital versions of their currencies.
The implication is that as the benefits of decentralized finance become apparent, it will take root and render centralized finance obsolete. There is no future for centralized finance as Bitcoin has already proven it is unnecessary.
Final Thought
Bitcoin links to decentralized finance. The blockchain technology that underpins Bitcoin eliminates the intermediaries in the financial system. Overall, the idea of decentralized finance is about removing the control and influence of a few entities on the financial system and distributing widely to everybody anywhere.
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