We all surely know what the centralized finance system is. This is a traditional form of financial relationship based on the banking system. Although this system isn’t loved by many, it’s still a solid and proven way to manage your finances without massive losses or risks.
However, there’s a huge drawback that the followers of traditional finance systems notice. Traditional approaches can’t be adjusted to the reality the world lives in.
New technologies, sophisticated payment options, and online solutions leave no choice for traditional methods. And DeFi comes to the forefront.
What is decentralized finance? In simple terms, it is an economic system that seeks to create open and accessible financial services. Its independence from authorities is the most important thing that distinguishes decentralized finance from the usual finance system.
If we put it simply, these financial systems are built on blockchain technology. The main goal of DeFi (decentralized finance) is to create a quality alternative to traditional banking systems. This goal is achieved with the help of blockchain.
Let’s compare these two systems and see which is more beneficial for today’s users. Of course, there are both pros and cons in the work of both systems. However, you can find something that appeals the most to your lifestyle.
Decentralized Finance: Pros and Cons
Let’s see what pros and cons you can find when working with the DeFi.These are those tools that, in a certain way, act as mediators between the user and digital finance.
The decentralized finance system consists of those appliances and services that aid in managing the finances in a faster way. The main thing is that the number of new platforms related to the decentralized finance field is growing, making them popular.
- A client does not need to have special permission to join the system. And this is the biggest advantage of DeFi. For example, you can exchange
- ZCASH to USD fast and without any major issues from the finance service provider side.
- You can open an account easily. There’s no need to work with unnecessary documentation. One more advantage is that users don’t need to be tech-savvy.
- Decentralized finance allows you to make money since interest rates are significantly higher than when you work with traditional banks.
However, you can also face certain drawbacks. For example, no main governing body can take full responsibility for the users. And you will not be able to block an account or cancel transactions when dealing with DeFi.
Traditional Finance Pros and Cons
You must know a lot about the traditional finance system because it’s a regular banking system that most people deal with.
If you ever needed to get money, transfer or manage other transactions, you most probably dealt with a bank institution or a different organization. The pros to working with traditional finances are numerous.
- First of all, you don’t risk much. In most cases, these are brick-and-mortar institutions so you can rely on them. You can exchange Bitcoin to Euro and feel safe.Â
- The second reason is the availability of traditional finances. You can find a place in any country or ask for help in almost any part of the world.
- It’s a governed system that helps its users fix the issues and help with the challenges.
However, not everything is nice about the traditional system. In many cases, this is an outdated solution for many people. The requests now need more abrupt and effective decisions. Hence, for many people, DeFi seems to be a more working option.