Understanding Decentralized Finance (DeFi) and Its Impact on Traditional Banking

From fees to send money abroad to delays in cross-border transactions, traditional banking systems have faced numerous issues. This has led to the rise of decentralized finance (DeFi), a financial system that operates on blockchain technology and is built on the principles of decentralization, transparency, and security. DeFi has emerged as a potential solution to the problems faced by traditional banking systems and is disrupting the financial industry in more ways than one.

Centralized vs Decentralized Finance

To fully understand the impact of DeFi on traditional banking, it is important to first understand the difference between centralized and decentralized finance. Traditional banking systems operate in a centralized manner, where banks act as intermediaries between individuals or organizations for financial transactions. This means that banks have control over your money and can impose fees, restrictions, and delays on transactions.

On the other hand, DeFi operates in a decentralized manner, where there is no central authority controlling the system. Instead, transactions are peer-to-peer and are verified and recorded on a public ledger using blockchain technology. This eliminates the need for intermediaries and allows for faster, cheaper, and more secure transactions.

How DeFi is Disrupting Traditional Banking

Accessibility and inclusivity are unlocked through DeFi, as anyone with a smartphone and internet connection can access financial services without the need for a bank account. This opens up opportunities for individuals in underserved or unbanked regions to participate in the global economy.

DeFi also offers more transparency and security compared to traditional banking systems. With all transactions recorded on a public ledger, there is greater visibility into where money is going and how it is being used. This helps to combat fraud, money laundering, and other illegal activities that can occur in traditional banking.

Currently, there is no guarantee that your bank is on the brink of solvency which can lead to financial instability and potential loss of funds for individuals. However, with DeFi, a project's financial health can be easily assessed by anyone through the use of smart contracts and on-chain data. This provides a level of assurance that traditional banking cannot offer.

How To Ensure The Safekeeping of Your Crypto

With such a major disruption to traditional banking, individuals need to understand how to safely participate in DeFi. The first step is to have a solid understanding of the technology and its associated risks. Without proper knowledge, one may fall victim to scams or lose funds due to human error. From self-custody to the use of DeFi applications such as a DEX (Decentralized Exchange) or lending platform, it is crucial to do thorough research and understand the security measures in place.

Finally, being able to monitor crypto in real time is essential as the market moves quickly during this financial revolution. Moonrig.io is a leading crypto portfolio management software that helps users get instant crypto alerts, track all their investments in one place, and make informed decisions.