Today, most finance entities—banks, hedge funds, and capital markets traders—have leveraged new technologies to quickly and cheaply move securities and assets around the globe. Platforms like Ethereum Code provide the best bitcoin trading experience with a low initial deposit. Moreover, the withdrawals on this platform are quick with extraordinary security.
But in contrast to traditional systems for moving physical assets like tanks or planes around the world, it is not generally possible for any country’s government to regulate or enforce financial transactions conducted using new blockchain technology.
Decentralized finance- the future of finance:
Without a centralized entity monitoring transactions on decentralized ledgers like bitcoin and Ethereum (and many more), governments cannot ensure their citizens aren't financing terrorism, laundering money from corruption schemes, or sending funds outside the view of tax authorities.
It is a problem because the bulk of global financial activity (which today is conducted in various currencies) happens in US dollars. For example, in 2016, roughly 60% of all financial transactions were conducted in US dollars, compared to 20% in euro and 10% each for the British pound and Japanese yen.
While US regulators have begun to grapple with the issue of regulating decentralized ledgers like Ethereum and bitcoin, there is no doubt that at some point, a new regulatory structure will be introduced by people to ensure that no one can use decentralized assets to finance illegal activities or evade taxes. But what exactly is a decentralized system, and how will it survive regulation? That's the question I explore in this post.
The rise of decentralized systems
Decentralizing the transfer of financial assets has two benefits for any entity that holds value: security and lower cost. First, when an entity can conduct transactions using a cross-border payment system that is not tied to any one government, it is less exposed to currency fluctuations, political risk, and legal/regulatory changes. Second, entities can avoid paying additional fees for currency conversions or bank transfers by using a decentralized ledger to conduct transactions (for example, bitcoin).
It is excellent for the end-user, but the success of decentralized ledgers like bitcoin and Ethereum has another significant implication—the ability to move assets worldwide without any government or bank getting in the middle. Unfortunately, it has sparked a lot of government actions in places like China, Russia, and Venezuela to crack down on bitcoin use. In response, some cryptocurrency companies are moving from holding onto bitcoin (and another type of decentralized assets) to having users settle transactions in company-owned tokens with a floating price.
Decentralized finance is banked upon Ethereum, but how?
As an entity conducting blockchain transactions grows in size, it becomes increasingly important to find a way to manage traditional bank-like functions like payments, access to capital, and compliance. By using code to replace the middleman (like a correspondent bank) and eliminating fees from converting from one currency to another at the endpoint of a transaction, decentralized finance may allow large and small entities to move around traditional assets without high fees or delays.
Also, Ethereum is the core of decentralized finance because most developers use Ethereum to build their projects and no other blockchain. Decentralizing payments, fundraising, and access to liquidity are the three areas where decentralized finance has taken off in recent years.
Payments
Several companies, from small software developers to large airlines, have begun using blockchain technology to receive payments from clients and suppliers. Payments on Ethereum are made through smart contracts.
Blockchain payments can result in lower costs for users and providers by eliminating the need for a central intermediary between two parties. In addition, the Ethereum platform is also creating a new way to fund projects: initial coin offerings (ICOs). A recent article from CNN describes how developers have taken advantage of the most recent hard fork to re-structure the Ethereum protocol to create new coins and tokens that can be used to fund their respective projects.
What are the benefits of creating decentralized applications on Ethereum?
Ethereum has developed a complex, extensive ecosystem to make it easier for developers to build. Creating an app on Ethereum is much easier than on other platforms. Ethereum is a platform where you can build whatever you want for your particular use case.
Projects built on Ethereum are already reaching over 10 million people in the decentralized world. These projects are built by teams of dedicated developers on the Ethereum platform who have been given free rein to create their projects and make them into something extraordinary.
The technology behind smart contracts makes it possible to create an entire project purely based on code, no one has control over it, and only the code is the law. In addition, by giving developers the tools to raise their own money using tokens, companies benefit from lower costs and fewer restrictions than if they opted for traditional venture capital funding or debt offerings.
Finally, it is essential to state that decentralized systems do not necessarily have to be based on blockchain technology. Many companies already use centralized systems to manage parts of their business (think PayPal) and can continue to do so as long as they comply with local laws. It's up to each company to decide how much decentralization is right for them, but for those looking for an alternative system, Ethereum could be just what you're looking for.
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