The history of human civilization is marked by several key points where innovation changed the world from that moment on. Events such as the invention of the wheel, the creation of the plow, and, more recently, the industrial revolution were essential to defining how human beings would live for thousands of years ahead. The rise of the internet still represents the most significant technological evolution to this day. Thus, it opened a gateway to a new upheaval in finance, brought by blockchain technology. We are talking about decentralized currency, which promises to be the next milestone to mark civilization’s history. But what is a decentralized currency and how it affects the current financial system? Let us take a look at the most important benefits of decentralized currency.
Decentralized Currency vs. Centralized Currency
Decentralized currency, also known as peer-to-peer money, is more than just digital cash. It is a bank-free method, where people can transfer wealth ownership without the need for a third party.
This method is highly promising, as it has potential not only to reinvent money as it is known today but also to revolutionize the way our society deals with information. Decentralized systems offer a new standard to gather and store all types of information, including sensitive and private data, such as voting systems, public registries, banking data, etc.
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However, most nations worldwide still adhere to a centralized fiat currency model. It means that central banks and government-related institutions remain in control of the majority of the current financial system. This fact can be a barrier to a democratic evolution in finance. These centralized entities are free to adjust the worth of the value to meet various obligations or goals as they want. Hence, most of the time this process is made in detriment of the end-consumer.
Besides, centralized systems are more prone to technical defaults, hacks, and corruption than decentralized systems, which are fully auditable and transparent.
To dig further into this subject, let us analyze 10 benefits offered by decentralized currency.
1- Decentralized Currency Can Act As A Stabilizing Agent in Troubled Economies
Centralized currencies require a well-structured foundation that relies heavily on national monetary institutions and policies. Such stability is completely impossible in countries immersed in chaotic political and economic situations, such as Venezuela, for example.
In such cases, a decentralized currency would be a welcome relief as an alternative to the mainstream banking system. It would give individuals a bank-less tool to reestablish economic exchanges within the community, with a decentralized currency acting as a stabilizing agent.
2- Decentralized Currency Is Designed For The End-Consumer
Most countries are still employing a traditional fiat currency model. In this system, all country’s currency value is held by a central bank. This value is represented in physical currency, such as paper bills, coins, deposit certificates, and other paper forms. Unlike many people may think, this system was not made to fulfill the interests of the end-consumer.
Instead, banks and other centralized institutions have their own agenda. It’s plain to see by the fact physical money represents ownership of the equivalent value at the central bank, which never leaves the bank unless it is transferred to another bank. The end-consumer is never in control of his funds or cannot define what can be adjusted or not about his own money.
By using a decentralized currency, users remain in full control of their funds-regardless of what may happen within the political or economic environment.
3- Decentralized Currency Equals Borderless Transfers of Value
Transferring centralized currencies across different countries is a process inherently tied to exchanges and fees. There are countries where there are no alternative payment services such as PayPal or TransferWise, so people stay hostage from inefficient and expensive banking transfer services.
A decentralized currency would turn this process into a seamless and inexpensive experience. Using a decentralized system means that all payments are borderless, which means it surpasses current limits imposed by transnational fiat payments.
4- Decentralized Currency Offers Immunity Against Inflation Or Deflation
There is nothing new in the fact that centralized banking systems are prone to mass failures and collapses. As inflationary monetary economics depend on specific interest rates to survive, investors started to recognize the possibility of using a decentralized currency as a hedge against the inflationary process.
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As a decentralized currency represents an immutable asset placed directly in the blockchain, it isn’t exposed to inflation or deflation. Some specialists even compare decentralized currencies to gold, as it shows the potential to act as a counterforce to inflationary volatility.
5- Decentralized Currency Is The Best Solution For Unbanked/Underbanked Populations
In layman’s terms, the world’s population is currently distributed into two different categories:
- Banked and documented
- Unbanked/underbanked and undocumented
Global metrics and statistics regarding human development show that numbers are drastically better in banked and documented areas. Knowing this, it is plain to see that access to financial services and documentation makes all the difference. But how to offer a banking and documentation system in utterly unstable nations, such as Afghanistan or Sudan?
The usage of a decentralized virtual currency is the shortest and easiest way to make it happen, without relying on governments or centralized entities.
The blockchain cannot be used only for financial purposes, but as an immense database to store contracts, deeds, insurance, IDs, agreements, property rights, and so on. Hence, a decentralized currency blockchain would offer a gateway for uplifting human development indexes and access to basic services in unbanked/underbanked populations.
6- Decentralized Currency Is The Easiest Gateway For A Real Global Economy
Global organizations such as the United Nations (UN) and its ramifications are constantly speaking about the importance of a global economy to reduce poverty, hunger, and economic-related issues worldwide.
However, such a goal is impossible to reach following a centralized path.
This is due to the nature of centralized institutions itself, that are prone to protect certain individual interests in detriment of community or global interests. A decentralized digital currency would not employ any sort of middleman or third party to run the processes.
As a decentralized financial system relies on programmable smart contracts, with rules encoded as a computer program, the processes are controlled by the community, instead of a central government or entity.
7- Decentralized Currency Shows How Effective The Blockchain Is To Solve Real-World Issues:
Since the rise of Satoshi’s whitepaper in 2009, the world has discovered the blockchain technology as a natural problem-solver for everyday issues. As the Ethereum blockchain took place and DeFi revealed several undiscovered ways to deal with value in a decentralized fashion, it became even more obvious.
Currently, there are decentralized currency solutions for almost every existing business niche, including:
- Instant payment solutions
- Ecommerce solutions
- Storage of documents, contracts, deeds, etc
- Pension and Retirement Funds
- Oracle and prediction markets
- Lending markets
- Long-term Investments
- Collectibles and Artwork
8- Decentralized Currency Is 100% Censorship Free
Given that no one can censor data in the blockchain, decentralized currencies are completely immune against censorship anywhere in the world. For an individual living under a democratic regime, the possibility of censorship of personal funds and income is a vague and distant concept.
However, for populations living under authoritarian regimes, decentralized currency is the difference between financial independence and starving. Many countries block or preclude certain groups from their private property and income sources, especially due to ethnic and religious persecution.
A decentralized currency offers a private and censorship-free way to make business and earn income, which empowers individuals in the most adverse conditions to stay productive and self-reliant.
9- Decentralized Currency Is The Most Democratic Way to Represent Value
Centralized systems leave a lot of power in the hands of central banks and governments regarding the decision-making process. Without consulting anyone, these institutions have the power to print more money (leading to inflation), change interest rates (which directly affects the supply of money), and change the value as they wish.
Decentralized currencies simply cannot be manipulated. Its value is set by the market only, not being affected by decisions of central entities or governments. Hence, this unique approach makes decentralized currencies the most democratic form of representing value within society.
10- Decentralized Currency Offers Transparency and Auditability
Centralized banks keep their database completely closed to the public and the disclosure of even a small part of the data will depend on complex legal procedures in the court. The experience with decentralized currencies offers the complete opposite. Blockchain is a perennial cryptographically secure database, so once a piece of data enters it, it stays there forever.
For instance, every single transaction since Bitcoin first came out on January 3rd, 2009 is there, public and available for anyone to check. This fact alone shows how transparent and auditable a decentralized currency is when compared to traditional fiat currencies.
Will The Future Be Decentralized?
In this article, we have shown how a decentralized currency works and 10 amazing benefits that it offers in comparison with fiat currencies. The bottom line here is not to simply showcase a short resume on decentralized currency pros and cons.
Instead, we offer solid arguments on the importance of the usage of decentralized currency as the next step in the evolution of civilization. There is an ever-growing demand for more decentralized currency meaning it’s a matter of time until it reaches mass adoption, or at least replaces a solid part of the current financial system.