Part 2 in our series DeFi: the new financial frontier
A new financial architecture is being built by super smart computer technologists and even some economists. It’s called DeFi crypto and it’s about much more than just crypto. It’s going to be bigger than Bitcoin. Perhaps even bigger than the internet V2.0. In fact, it’s the single most important thing you as a financial freedom seeker can get your head around – now. But what is DeFi? What does in mean for your financial freedom in practical terms?
Our DeFi: the new financial frontier series is helping financial freedom seekers understand the monumental shifts in the tectonic plates of our global money system. If financial freedom is all about how well you play the game of money, then that game just got new rules so stay tuned to this series as we explain them.
Who controls the ledger controls the money game
Ledgers have historically recorded financial and commercial transactions between people – the ‘who owns what when’ – since, well, a long time. If you think about it, for any significant exchange of value, there’s a central record of the transaction kept by someone. Ledgers are more than just a record. They’re also about trust. An independent third-party bearing witness to the exchange of value between strangers and so on. Whoever controls the ledger has significant power in the game of money. Over the rules that is. How transactions must occur, between whom, and how much they cost.
So, who controls the ledgers? Middlemen such as banks, insurers, brokers, auditors and policy makers, and the institutions they have created do. And through this the centralised control of money has become the norm. But will it always be?
What is DeFi? The new rules of decentralised money
DeFi is the decentralisation of financial products using blockchain technology.
DeFi uses Blockchain technology to replace the role of middleman in financial and commercial transactions and decentralise the control of money.
Blockchain was created to act as a ledger that no one entity could control but that needs the participation of many to operate. It seems simple on the surface but in its very design, blockchain technology fundamentally ‘up-ends’ the money game as its currently played. That’s why there is a lot of scrambling going on in the halls of traditional financial institutions, about Bitcoin and cryptocurrency. But cryptocurrency and bitcoin are just white noise once you step back and take a look at the bigger picture of Blockchain meets Money.
Blockchain meets money
Blockchain technology’s decentralisation of money – Decentalised Finance (DeFi) – will profoundly change our money future. The changes have already started. The introduction of Blockchain technology to the world of finance is seeping into the money system under the cover of crypto and Bitcoin. Over the coming decade, DeFi crypto will likely impact the way you save, where you put your money, how you borrow, where and how you invest in assets, how you manage them, the stocks you buy, your retirement nest egg, your investment income and any trading you might do. Just about everything to with your money.
You see, Blockchain changes the money game in four critical ways:
- It acts as an immutable public ledger through which participants can validate transactions automating the trust element between third parties,
- Its design decentralises control over that ledger,
- it allows the tokenisation of assets by fractionalising ownership of those assets, and
- It transcends national borders, putting opportunity in the hands of the masses and millions of unbanked across the globe.
What does DeFi mean for your financial freedom?
The real-life impacts on your financial freedom due the structural changes being bought borne out through Blockchain and DeFi crypto are profound peeps! Here are just a few we can think of:
- Faster financial and commercial transactions – blockchain now provides an easy way to send money quickly and cheaply across the globe
- Fewer middlemen and rent takers = fewer fees and charges = you keep more of your hard earned assets
- Lower barriers to entry – no minimum investment requirements for example that apply to some of the most profitable instruments in financial markets
- Lower cost to buy in to financial opportunities so greater access to markets
- Fairer ways to grow wealth
- More transparency to replace the opaque rules that currently apply to the game of money – particularly gold investing, and
- The biggest of them all: You get to control your money – no custodians, banks, no gatekeepers clipping the ticket or saying no to your financial future
The final word – may the odds be ever in your favour
I really want to focus on that last dot point because it is exactly what financial freedom is about. You taking control of your money. DeFi crypto can give you new tools to do exactly that – if you learn the rules of the game and get comfortable with the tech. Don’t be afraid, but do get educated. And do manage risk! The new game of money is here. It involves investing in cryptocurrency and decentralised finance. As they say in the movies, may the odds be ever in your favour!
Check out part 3 in our DeFi series to see how to earn double digit interest on your money with DeFi crypto.