Decentralized System vs Centralized System
Every day, cryptocurrency is gaining more and more popularity among the population, commercial organizations and financial institutions.
We observe how various cryptocurrencies are gaining momentum in popularity, integrating more and more into everyday life and demonstrating many advantages in comparison with our usual money. But the question arises, will digital currency be able to compete with cash?
Despite the popularity of digital currency, it still cannot compete with the scale and capabilities of centralized financial institutions and state systems that have a century of history. The central financial authority (central bank) issues the national currency in the form of cash to meet economic needs. Then, centralized institutions, represented by banks, exercise control over funds, ensuring the regulation of supply and demand for financial assets.
The centralized currency remains the norm today and it is difficult to imagine an alternative to this. This has its pros and cons. Many people are accustomed to trading and making money in the financial markets using fiat money. But centralized institutions of power, in practice, create high levels of risks, as well as the lack of transparency of financial institutions in dealing with centralized currency, cause distrust. Suppose, in order to cope with the economic crisis, the central bank, having made the emission of money, will not find solutions to get out of the crisis situation. That this measure can undermine the economy of the state as a whole, since the resulting hyperinflation leads to the depreciation of the money supply.
A decentralized financial system and the increasingly popular cryptocurrency associated with it can be the key to solving these problems. First of all, digital currency is issued, serviced using blockchain technologies and digital registers. Consequently, eliminating the need for intermediaries and significantly reduces the fees for payment transactions and transfers. Also, reducing risks and increasing accessibility to users, due to the transparency of the blockchain, which the traditional centralized financial system cannot boast of. That is to say, democratization of the financial system will make it more popular and accessible among various segments of the world’s population. Allowing you to take a more active part in investing, buying, selling and in the whole range of opportunities provided by a decentralized system.
In search of an alternative financial model, recently we are increasingly paying attention to the blockchain-based payment system and various digital currencies. Governments and central banks of many countries are increasingly beginning to consider digital currency as an alternative to the existing financial system. In many countries, cryptocurrency has taken a legal basis and the central banks of these countries even thought about launching their own digital currency. With the development of modern technologies, the existing financial system has already shown its inefficiency. Since the storage and circulation of cash is a laborious and costly process. Alternatively, a decentralized currency has the ability to increase functionality and eliminate distrust of the existing financial system by solving two fundamental problems, accessibility and transparency.
Undoubtedly, cryptocurrency still has a long way to go before it becomes an everyday reality. But we are more and more aware that in the foreseeable future it will replace the usual credit cards and cash. And also to solve the problems of imperfection of the centralized financial system.