The world of traditional finance has countless bottlenecks and stoppers that prevent efficient operation. To resolve this issue, the industry has begun codifying some aspects of trust, such as transaction finality. Due to decentralization, no government or individual can now control, censor, or alter your transactions once they’ve been completed.
Blockchain Enables The Decentralization Of Finance
Some wounds that have been left to fester for years include:
- Centralized and predatory loan-making practices
- Artificial inflation controlled by central banks
- Limited access to business funding
- Difficulty obtaining microloans
Cryptocurrency, blockchain, and fintech projects have taken a stand to root out the underlying inefficiencies using Distributed Ledger Technology (DLT), which underpins blockchain networks such the Bitcoin Network and Ethereum. These networks are secured by the value of their respective currencies, bitcoin and ether, also known as ‘cryptocurrencies.’
The “crypto–” prefix means that the currency is rooted and secured by cryptography. Cryptography uses ciphers—a way to rearrange numbers and letters so that they can be interpreted, but only if you have a “decryption key.” By using cryptography and coding blockchain networks so that transactions essentially cannot be reversed (barring a few exceptions, commonly known as private chains and a few development bugs.)
Unconditional Access To Market Opportunities
Blockchain has also offered entrepreneurs the chance to launch countless new businesses. Some of these ventures, such as CryptoKitties, have pushed the envelope for development teams to accelerate their answers to the scalability question, while others, like SALT Lending have changed the way lending is managed.
Non-traditional business methods have flipped financial services and banking companies on their heads. Remittance, the act of sending money from one country to another, was just one example of how finance was disrupted.
For instance, upon seeing migrant workers in Thailand and Myanmar losing as much as one-third of their income to financial custodian fees, Everex.io developed a cross-border remittance platform with low-to-no fees.
Other blockchain businesses have worked to codify traditional legal contracts. Lending, legal services, and remittance are three services which are massively inefficient in the old-world financial system. DeFi, or decentralized finance, has alleviated many of these barriers to entry. As a result, young entrepreneurs are erecting new businesses at an unrivaled rate.
Self-Custody
Self custody means that no one else has access to your money. You own the ‘private keys’ that control your ability to send funds out of your blockchain wallet account. Some enthusiasts tout the security of hardware wallets, stating that it’s near-to-impossible to break through that level of security, likening hardware ‘cold wallets’ to Fort Knox, where a large portion of the world’s gold sits.
With self-custody, crypto wallet holders are able to transact freely, sending their funds when and where they want. Because there have been instances, such as the Mt. Gox hack in 2014, where private keys were held by a centralized party, in this case, a bitcoin exchange. As a result of that information being held in one location, over 850,000 BTC was stolen.
In modern terms, that’s equivalent to $43 billion USD—at an exchange rate of $50,934 per BTC. Understandably, cryptocurrency users have become wary of others retaining their private keys. It’s like having a digital safety deposit box that only you can have the key to, then giving it to someone else. Not the box, just the key, because the box is floating somewhere in cyberspace.
Independence from third-parties, such as banks, was among the founding directives of bitcoin, the world’s first cryptocurrency. Some companies have retained this vision, while others have allowed customers to transfer their custodial rights in order to have their assets managed under the care of a professional.
Non-custodial Wallets As A Foundation Of Decentralization
Non-custodial wallets essentially exist without some arbitrary third-party, such as a bank, who could provide oversight of the assets within and effect any form of change on the wallet. Because these wallets are only controlled by the creator, virtually no form of exploitation, such as asset freezes, bank robberies, or cyberattacks can compromise funds.
Non-custodial wallets also provide a level of autonomy and censorship resistance that hasn’t been available to consumers previously, without the risks that come from cash transactions.
A few businesses have emerged over the last few years casting down the gauntlet and offering non-custodial wallets to customers. Features that users often look for include:
- Ease of use – most users view wallets as their ability to store multiple cryptocurrencies in one wallet,
- Does not collect personally identifiable information (PII) about users – users are wary about giving away any information that can be used to figure out their identity,
- Free of third-party influence (non-custodial),
- Passed open-source third-party security audits and other verification,
- Able to see USD or other fiat currency pegged value of their crypto holdings,
- Provides access to trading, direct ability to invest, crypto analytics and decentralized asset trading in the app.
Unstoppable Wallet, developed by Horizontal Systems, is one of a few cryptocurrency wallets that check all those boxes and also received a clean bill of health from CertiK Security. They implement trustless communication for most of the major blockchains as well as privacy coins like Zcash and Dash.
Overall, the new world of decentralization spurred the emergence of new wallets that store assets securely and do not require any third-party assistance, such as banks or the government. To ensure safety of your assets and privacy of your data, always do your own research and read documentation provided by developers.
Binance
Crypto.com
Ledger
1XBIT
