Decentralized Banking: The Answer to Loophole in The Centralized Banking System

 Decentralization, backed by the so-called blockchain technology is a term that has started to penetrate even the remote nations of the world. 

Wondering how? 

Well, the awesome benefits it offers from the reduction of cost, facilitation of decentralized platforms to enabling secure, as well as trustworthy products/services, lead to all the fuss. In this Blog, we will focus on how blockchain technology holds the untapped potential to revamp the banking and finance sector through ‘Decentralized banking’.  

When it comes to the financial sector, decentralized banking allows a rise in fintech services that are distributed in nature, interoperable, innovative, borderless and above all transparent. The decentralized banking services have the power to chop off the transaction costs, facilitate open access, promote permissionless innovation and create fresh opportunities for the budding entrepreneurs out there. 

The Emergence of Decentralized Banking: 

As the new era of financial technology is rising in the form of decentralized finance or decentralized banking has led to the reshaping of the existing financial system. For the longest time, the central banking system existed in most parts of the world, intermediaries have played the ultimate role in making the banking services possible and making the transactions (done by involved parties) a success. These intermediaries help the transacting parties to spot each other, establish trust and then finally make the required transaction. And, for a long time, we humans thought that carrying out any kind of transaction without the presence of intermediary bodies was not possible. 

Well, blockchain technology made that possible! 

Yes, the intermediary bodies are self-serving and leverage their ability to enable all the economic transactions but to serve their self interest along with the transacting parties involved. But, over time these intermediaries have become the root cause of many flaws in centralized banking. From monopoly of power to unsafe transactions (mostly in the online world) common people are suffering due to these loopholes in the centralized banking system backed up by the intermediaries or third party. The issues are bigger with the financial system wherein the financial transactions are carried out and controlled through large financial institutions. 

For decades, infact centuries, financial institutions have played an important role in mediating as well as structuring the economic transactions that would be very difficult otherwise to execute. Overtime, they have enhanced and improved to facilitate a reduction in costs, building a trust factor between the transacting bodies/parties, helping them to connect and communicate. 

But, there is a need for more!

The birth of the concept of FinTech did reduce the need for financial institutions and improved the efficacy of the traditional banking services but even it could not completely get rid of the need of ‘intermediary bodies’ and often substitutes one intermediary body with another. In a nutshell, even in today’s time, most financial transactions rely on centralized institutions so as to build trust among the parties involved in the transactions.

This is where blockchain technology steps in and so does the concept of decentralized banking! 

Blockchain technology and decentralized banking can be said to be the net progression in this regard. All the recent developments in blockchain technology have to lead to the creation of disintermediation and decentralization. Infact, decentralized banking (backed by blockchain technology) is the one concept that completely eradicates the need of an intermediary body so as to facilitate any kind of financial transaction/products/services. Blockchain technology enables distributed trust and leads to the creation of a decentralized platform. As a result, the decentralized banking system reduces transaction costs and increases the bandwidth of possible transactions. Since it is empowered by blockchain technology, financial services, and products can become borderless, interoperable, innovative, and transparent, all those features we talked about at the beginning of the article. 

This paradigm shift in the financial system is bringing a huge change in terms of opportunism and producing a distributed trust as most of the transactions are recorded on the blockchain (a public ledger) and lead to the production of distributed trust. Since the transactions are recorded on the blockchain, they are valid, immutable, and verifiable. 

For those who are unaware, decentralized banking can also be understood as decentralized crypto banking. Why? 

Well, just like decentralized banking, cryptocurrencies also function due to the backup of blockchain technology.  If and when the transactions are carried out through cryptocurrencies or virtual currencies then the system is called as decentralized crypto banking. Just like decentralized banking, decentralized crypto banking is trustworthy, secure, borderless, immutable, and fast. So, what is holding you back? Begin your journey with the usage of this technology through EMOCOIN! 

What Does Decentralized Banking Offer? 

  • In centralized banking structures, financial institutions act as the intermediaries and perform the work of controlling/mediating financial transactions. However, these intermediaries may concentrate power in their hands leading to monopoly. But, the ‘Decentralization’ offered by decentralized banking works contrary to this. It facilitates peer-to-peer networks and eliminates the need of intermediaries. 

  • Next in line is ‘Innovativeness’. The concept of decentralized banking promotes and enables permissionless transactions wherein there is  no need of the controlling party to overlook the transactions or financial products/services. The developers are free to experiment and build new applications without having to ask for permission. 

  • The third benefit offered by decentralized banking or decentralized crypto banking is the ‘Interoperability’ wherein the blockchain technology enables the building of financial structures on public ledgers that are open ended. 

  • Next in this line is the benefit of ‘Borderlessness’. Decentralized banking offers borderless transactions and fast as compared to the conventional banking set-ups around the world. 

  • Last but not least is ‘Transparency’. Decentralized banking is capable of enabling a completely transparent financial system characterized by the presence of public ledgers that are distributed and hence transparent. 

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