Why Is Decentralization Important?

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?

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.

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 launches 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.