Centralised vs. Decentralised Finance: What’s your Play?

Both possess intrinsic pros and cons. Let go off the emotion and judge with an open mind. (Disclaimer: NOT FINANCIAL ADVISE).

Sharad’s Sunday Sojourns (week # 488 | 22nd August 2021)

“What happens when an industry transitions from using one or more ‘smart’ and centralized networks to using a common, decentralized, open, and dumb network? A tsunami of innovation that was pent up for decades is suddenly released.” … Andreas Antonopoulos.

Blockchain technology has many applications. Perhaps one of the most utilised and most debated sector is finance, with its fair share of upside crests, as well as downside troughs, intertwined between its potential, regulations, and innovations. (Image source: DevTeam.Space)

Before we go further, consider this.

Do you think you are more comfortable in getting a downside of around 1% interest in your local bank account for your deposit forever?

Which is perhaps guaranteed, despite the ups and downs in the market, but will it probably ever let you touch that hallowed portal of financial greatness?

Or are you more of an adventurer with a high risk-tolerance ability, and stand a chance of either gaining an upside of around 50–100% gains (or losses) over the course of time?

I believe that you have a clear-cut definition of your persona, already perceived and nurtured over many years.

Then it’s straightforward for you to be able to figure out, which boulevard are you going to cherry-pick, without sweating your pants off, and without recurrently whining over your regular 9 to 5 (unless it’s super exciting, of course)!

Saying that, pros and cons are perpetually built in into these two extreme scenarios.

Consider the first one.

Traditional financial entities, i.e., banks (majorly), and other incentives, would try to safeguard your money via insurances (huge debate over the actual implications, though!), thereby being able to provide you a reasonable ground to sleep well at night.

On the flip side, in a highly regulated financial ecosystem, high-end KYC requirements will be a ‘quid pro quo’, and ‘big daddy’ will always keep an eye on your revenues and tax filing, to say the least!

Nevertheless, at the end of the day, you are free to enjoy some sort of freedom from a perpetual anxiety to try and keep your ‘house’ in order.

Let’s take the second option.

With the advent of the blockchain technology, it is now easier than ever to implement ‘anonymity’.

In the process, you evade the stringent KYC requirements, the red eyes of the traditional financial ecosystem, and the government.

Additionally, the scopes of innovation are virtually endless (consider cryptocurrencies), loaded with smart contracts, proof of stakes, as well as an intrinsic manner to step up that fixed deposit interest.

And if you are dwelling in a tax-free state / country, or where there is some sort of freedom from tax overloads (Middle East, The Caribbean, Switzerland, Singapore, just to name a few), thanks to the huge upside, you are now an active proponent of the FIRE (Financial Independence, Retire Early) movement!

Saying that, be prepared to note that you can’t complaint when someone steals your money, you are being rug-pulled, since virtual presence can be good only to certain extents!

And then, many, just like me, prefers a middle-path!

Sounds strange? Not really!

Imagine a system, where some form of KYC is persistent, just to rule out the scavenging activities (extortion, illegal activities), and at the same time, you are able to work your money the way you desire, without the overtly bossy interventions of your financial ‘watch-gurus’!

The only permanent thing in this world is ‘change’!

Despite the gradual building up of the central governments’ interests over the conceptualisation of CBDCs (central bank digital currencies), for instance digital Yuan (China) and e-RUPI (India), I personally believe that the decentralised finance will eventually outshine several of its ‘FUDders’ (Fear, Uncertainty and Doubt enforcers).

It has been for a long while, but only in the last few years, the massive boom in the scale of opportunities and innovation ideas, has been able to be channelized and incentivised.

Per se, there is nothing extraordinarily wrong with the centralised finance. In fact, tight regulation has its benefits, too! However, decentralisation conveys virtually an endless set of innovation opportunities, which should only be ignored at the expense of our own future! (Image source: Nitrolution)

Still we are so early!

I believe that an eventual success will depend a great deal on the unfolding of the future global events (especially finance).

The ultimate success will perhaps depend heavily on the rational and judicial adoption of associated technologies (AI, quantum computing).

Remember, people strongly doubted the internet too, in the 90’s!

(Video sources: YouTube)