Traditional Finance vs. Decentralized Finance
Gone are the days when people used financial institutions, banks and intermediaries to give them complete control of their cash. It is the era of smartphones and the connected world. In this digital world, people need more control over money, trustworthy services and transparency that were not available in traditional finance or TradFi.
Traditional finance is conventional, impervious and strongly controlled by centuries-old infrastructure. Although traditional finance was a popular method to lend, borrow, trade or invest money, still TradFi was not a user-friendly approach due to the following challenges;
1. It is not easy for everyone to open their bank account and acquire financial services
2. Traditional finance doesn’t give complete control over your money
3. Companies hold and monitor your hard-earned cash
4. People pay high fees to third-party authorities in TradFi
5. Bank and financial institutions work under the government law and legal policies
6. People can’t see prior loan history and records
7. Without human intervention, you can’t process your money
8. Banks and third-party authorities take days to complete business transactions
In order to cope with the traditional finance challenges, there was a great room for some revolutionary ideas to change the concept of the traditional financial systems by giving ownership and control over hard-earned money. Luckily revolution of blockchain and cryptocurrency has offered some out-of-the-box solutions to traditional financial problems. Ethereum is taking the lead by providing a solution to lending/borrowing challenges posed by traditional finance through the concept of DeFi (Decentralized Finance).
Ethereum, the second-largest cryptocurrency platform, introduced a new concept in the market to combat the challenges of traditional finance. Unlike Bitcoin, the purpose of Ethereum was to initiate smart contracts approach. Smart contracts change the entire game of digital money, enabling you to do more than just storing or sending coins.
