⚔️Comparison

Decentralized Finance and Traditional Finance: A Comparison

It’s reasonable to ask why one should bother getting involved with DeFi in the first place, given that traditional financial institutions continue to provide a variety of time-tested services to millions of customers. But DeFi isn’t just another way of doing business; it provides benefits that old-fashioned financial institutions cannot match. When you keep your money in a bank, you're enabling a specific third-party institution to take over the responsibilities involved with monitoring and validating transactions. Many of these functions are carried out according to a schedule set by the bank. For instance, anyone who routinely cashes checks at an ATM is familiar with those notices posted on the machine reminding users that their deposits must be made by 6 or 8 p.m. to be counted as a transaction for that day. There is also a dizzying variety of transaction fees associated with using traditional banking services: overdraft fees, account maintenance fees, excessive activity fees, minimum balance fees, out-of-network fees, and more. Most bank customers have had the experience of incurring one or more of these fees purely by accident. Furthermore, certain bank services are restricted to customers who can comply with specific criteria. If you have a poor credit history, it’s unlikely that you will be able to obtain a loan. Even if you can, you may be forced to accept huge interest rates. Another drawback is data privacy, or the potential lack of it. Financial institutions, and the various applications used to support them, are frequently targeted by cybercriminals. This can result not only in the loss of your funds but the exposure of your private information (e.g., Social Security number, etc.). When you use decentralized finance, however, most or all of the above-mentioned issues don’t really come into play. DeFi, like cyberspace in general, operates on a 24/7 basis. There are no daily deadlines to perform certain routine transactions. There are no geographic restrictions. Nor is there a middleman that needs to take a “service fee” of one type or another; smart contracts make these third parties unnecessary. DeFi also doesn’t require any kind of application process—you simply access a decentralized application of your preference and then dive right in. Even loans can be obtained anonymously. This provides ample opportunities for individuals who, due to bad credit or other factors impacting their financial stability, may be stonewalled by conventional institutions. The speed and flexibility of DeFi is proving to be increasingly difficult to ignore, especially among individuals who would prefer to bypass the roadblocks associated with the old-school financial sector.