Have you ever wondered how Neo, the character played by Keanu Reeves in the movie Matrix, could have paid for his paraphernalia? All without being noticed by agents, in case he had to download an app like PayPal or GPay for a transaction and then pay commission for each extra-terrestrial exchange.
If that is difficult to fathom, think of a world where financial institutions face huge losses facing a backlash from a viral pandemonium, just like Covid-19 induced lockdowns and there is a huge economic depression resulting in crashing of currency just like the Venezuelan Bolivar.
Neal Stephenson in 1999 first thought of the problem and his science fiction book Cryptonomicon, he first introduced the concept of blockchain and cryptocurrencies. His imagination evolved and developed around the idea of an information paradise where it’s possible to exchange information without state regulation and censorship freely.
Current financial anomalies pave the way for DeFi
If not a global scale, the world has seen it all and hence DeFi has emerged as the key driver of disruption for blockchain technology.
Traditionally, financial systems rely on intermediaries like banks, brokerages, or other financial organizations for financial structures. These centralized entities have complete control, creating issues that act as buffers impacting the transaction speed and cost, resulting in dissatisfaction among the financial system parties.
Ethereum is the pioneer that introduced the world to the DeFi. The Ethereum blockchain ecosystem introduced the world with newer technological tools, such as — digital assets, smart contracts, and dApps. The introduction of the first-generation blockchain with cryptocurrencies demonstrates the possibility of an alternate financial infrastructure.
Transparency is the new power
Decentralized Finance or DeFi runs on blockchain technology that has introduced improvements like permissionless setup, transparency, and decentralization, moving a notch ahead from the open banking system. The open banking system draws data from several financial institutions that securely manage traditional financial instruments using one application.
However, DeFi allows the creation of entirely new financial instruments to interact in new ways. Countries are now starting to realize that open government data improves transparency, creating opportunities for social and commercial innovation and opening the door to better engagement with citizens.
The paradigm shift from the traditional values that emphasized captured knowledge as the true power in the business world is now a reality. Forward-looking businesses are already adopting open and collaborative business practices as it could improve their profits. In a highly connected world as in gaming, we call the metaverse; transparency is the new power to assist the private sector in reducing cost and better managing risk.