The Rise of a Decentralized Economy

In this article we are going to see, The Rise of a Decentralized Economy and Traditional Financial System

Traditional Financial System

Financial markets today are highly integrated, competitive, distributive and complex. Companies have to make active decisions based on real-time information. Stakeholders rely on financial systems for real-time, actionable data to plan, define, build and drive performance and growth of their interests. The reliability of the data and its application have revolutionized the financial markets.

The traditional financial system lacks the intelligence and analytical functionality to meet the growing needs of the modern-day financial network. Financial institutions like banks have not been able to cater for the financial needs of the people. The rising incidence of defaults, and scams make it wary of extending loans to small businesses and to people belonging to lower socio-economic strata.

Financial inclusion is another persistent challenge in traditional banking. This leads to a high dependence of people, especially the rural population on unregulated lenders who exploit them with heterogeneous and high interest rates. Fintech solutions and government solutions have made banking digital and online but have not reaped their expected dividends.

A large portion of the unbanked population, complex documentation, and application processes have inhibited the growth of the banking system. Extensive use of smartphones, technology, and mobile internet is a viable solution but it has jargon of complications and complexities that have added to the root cause of the problem. Deposit schemes offered by various financial institutions either offer low returns on savings or are unattractive and subject to market fluctuations. They are affected by depreciation and inflation which sometimes leads to negative returns.

The CEO and other stakeholders depend on financial reports for the assessment of the performance. Voluminous Excel sheets and data files lead to errors, and manipulations and compromise the productivity of the employees. Their results are inconsistent and unreliable. They also incur huge audit costs and other overhead expenses.

Blockchain- A tailor-made solution and The Rise of a Decentralized Economy

The backdrops of the traditional financial system necessitate the use of a technology that resolves the core problems of the financial sector.

Blockchain technology is an answer to all these problems and can herald a new paradigm of financial transactions. The use of cryptographic algorithms and smart contracts has the strength to automate the entire business model.

Most of the scams occur due to a lack of transparency and data integration, and misuse of confidential information. The use of a distributed ledger minimises the degree of risk as the data is stored and verified by each party in the block. This data is incorruptible, inalterable and infallible. It also solves the problem of double spending.

All the transactions are conducted in an uncomplicated manner and KYC ensures the interests of both parties.  Blockchain technology does not require the users to read between lines, enhances transparency, and data integrity and reduces the possibility of mismanagement of funds.

Machine learning, decentralised architecture and big data analytics have a scope to create a democratic and collaborative marketplace model where all transactions are handled online. There is no need to visit any office or queue up in long lines.

Traditional financial systems have also started tapping the benefits of this technology. Transactions on blockchains are auditable and tamper proof which increases the credibility of this transaction among the users.

Conclusion

Blockchain technology offers a new age solution to the fallacies of the traditional banking system. The absence of complexities and jargon makes this technology even more popular among potential investors. Real-time access to information and a reduction of intermediaries make the decentralized system an imperative and inevitable solution to all financial problems.

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