DeFi has been in the spotlight in the blockchain and crypto world this year. Fintech innovators are designing ecosystems that are open, unlicensed, borderless, inexpensive and have no central authority. This is something that has not happened before, and it contradicts the financial system that Rothschild and J.P. Morgan where the government and central bank have been operating for more than a century. Governments enforce borders and bankers charge high fees, and their involvement requires third party intervention.
In response to these changes and differences, central authorities are exploring ways to take advantage of the great benefits of blockchain-based money. Their solution so far has been to present a central bank digital currency or CBDC. Although DeFi is still new, this time the central bank-national government seems to be paying more attention to this, because it is very possible if decentralized finance can replace the existing financial system.
Decentralization of money is disruptive because it places power and choice in the hands of individuals, and is far from being a central monopolistic entity. An estimated 24% percent of money is cash. Cash is expensive to produce, store, distribute and maintain. Much of the money supply is electronic and it is inevitable that most people around the world start not keeping cash in their wallets.
The CBDC is basically a tokenized currency and users enjoy the convenience of easy and fast transactions. However, there are concerns about privacy and personal data collection. An unethical central bank, government, or bureaucrat can see someone's transactions 24/7, depending on local regulations. It remains to be seen how CBDC will be implemented around the world such as in North America, China, Europe, South Korea, India, and other technologically advanced countries.
CBDC Stability, Reliability, and Surveillance
The Chinese government wants the renminbi (RMB) to become the world's global reserve currency, such as the US dollar. Earlier this year, China tested the digital yuan at four. The country of 1.4 billion has tight capital controls and there will likely be privacy concerns as politicians try to convince citizens of the need to protect financial sovereignty.
China refers to its electronic money as DCEP. Huang Qifan, chairman of the China Center for International Economic Exchange, said DCEP was able to achieve real-time data collection related to money creation, bookkeeping and the project for nearly six years.
The central bank says CBDC brings credibility, reliability and convenience compared to speculative Bitcoin. Meanwhile, in August, Lael Brainard, a member of the U.S. Federal Reserve Board of Governors. does not appear interested in introducing American CDC.
"Like other central banks, we continue to assess opportunities and challenges, as well as use cases for, CBDC, as a complement to cash and other payment options," Brainard said in a speech in San Francisco.
DeFi Creates Freedom and Convenience
The existence of DeFi is able to free global finance by transferring power from central entities to individuals. The main driver of DeFi is freedom from regulation, movement of capital, trading can be carried out easily. DeFi is also financially beneficial given that the government cannot implement effective tax procedures for fiat non-sovereigns.
Throughout history, the government and / or central bank have always monopolized the money supply and monetary policy. Using DeFi in terms of financing allows lenders and borrowers to eliminate intermediary fees by conducting P2P transactions. Depositors can earn higher interest on their capital compared to just two percent offered in a physical bank savings account.
Every week, new ventures innovate DeFi solutions in payments, mortgages, insurance, infrastructure, analytics and more that scale non-government, self-governance protocols. In the end, it is society-consumers who choose what media they will use.