paint-brush
What Is Traditional Finance & Why Is the Current Financial System on Shaky Ground?by@RamaTarun
322 reads
322 reads

What Is Traditional Finance & Why Is the Current Financial System on Shaky Ground?

by Tarun RAMAOctober 25th, 2022
Read on Terminal Reader
Read this story w/o Javascript
tldt arrow

Too Long; Didn't Read

DeFi is a new financial system allowing anyone to create their own loans or tokenized assets. It's a decentralized ecosystem, which means it doesn't rely on central institutions like banks or government agencies to process transactions. This results in faster and more efficient transactions for everyone involved and less dependence on one specific institution. The DeFi movement is global by nature; anyone can participate! According to a study, nearly half of millennials would rather invest in cryptocurrency than stocks or bonds from their employer's 401(k)

Company Mentioned

Mention Thumbnail

Coin Mentioned

Mention Thumbnail
featured image - What Is Traditional Finance & Why Is the Current Financial System on Shaky Ground?
Tarun RAMA HackerNoon profile picture

If you were to step outside today and ask a group of ten people for their opinion about the state of the financial system, you'd likely get twenty differing opinions.

There is a growing divide regarding how people feel about the current financial state. On one side are those who are fed up with a centralized financial system that has proven to be highly susceptible to fraud.

On the other hand, you have those who prefer using their debit or credit cards over making cash transactions. Interestingly enough, both of these perspectives are valid.

The current financial system is inherently centralized, and at the same time, more decentralized alternatives are growing in popularity.

The Current State of Finance

The current state of finance is dominated by a few big players. The financial system is opaque, inefficient, and unfair. This has led to large amounts of speculation and high fees for the end user.

It's hard for small businesses to get loans or find investors because it's expensive for them to get involved in traditional finance.

Every step of the process requires intermediaries that take a cut of the profits along the way, which can add up quickly.

The DeFi movement aims to change all that by bringing transparency back into our financial system while lowering costs and allowing everyone accesses to capital markets at scale.

What Is It About?

DeFi is a broad term that covers many different types of decentralized finance. It's a new financial system allowing anyone to create their own loans or tokenized assets.

This can be done on Ethereum and other platforms but will usually use smart contracts (a special computer program) that act as an automated escrow or middleman between the lender and the borrower.

DeFi is not one thing; it's a collection of many different projects working in unison to create something much larger than any one project could achieve alone.

The projects work together to form a cohesive whole: they're all parts of one giant ecosystem made up of people who want to help each other succeed financially through mutual cooperation rather than traditional business models like banks or lending companies.

The DeFi movement is global by nature; anyone can participate!

Why Does It Matter?

In the past few years, a new type of financing has emerged using blockchain technology. DeFi is not just about finance; it's about decentralization. It's not just about the future; it's happening now.

The Current State of DeFi

DeFi is a new financial system that aims to compete with traditional finance.

It's a decentralized ecosystem, which means it doesn't rely on central institutions like banks or government agencies to process transactions.

This results in faster and more efficient transactions for everyone involved and less dependence on one specific institution.

While DeFi has many benefits, it also faces some challenges:

Risk of failure: Many members of the DeFi community are invested in various protocols, so any project failure would negatively impact them.

For example: if one protocol fails, then all tokens related to it will suffer too—and those who own those tokens may lose money because they're no longer backed by anything tangible (like gold).

Centralized control: If there aren't enough people using a protocol and participating in the infrastructure around it (for example, electricity), then that protocol could lack enough resources needed for its operation—which could cause problems down the line when trying to access funds stored within those systems since there won't be anyone around who can help secure them properly or assist users with issues arising during their time online!

The financial frontier is a broad range of innovations that are put into practice by many blockchain projects.

The traditional financial system has long been outdated, slow, and inefficient. It's not surprising that many people have turned to DeFi - the future of finance.

In fact, according to this study, nearly half of millennials would rather invest in cryptocurrency than stocks or bonds from their employer's 401(k).

Conclusion

Traditional finance is likely not going anywhere anytime soon, but many people are looking for ways to play in the DeFi space.

We're far from seeing decentralized finance taking over the financial world, but this new way of looking at traditional finance could have a lasting impact on the future of money.