What Should One Choose for Their Enterprise? 

Since the beginning of the modern economy, the system of managing finance has been centralized. Banks and government authorities have been taking care of the fiscal landscape of the whole world. It worked for the entire world that embraced democracy and needed a robust system for handling money.

But the times are changing now and global finance is looking at alternatives. Cryptocurrency has introduced a decentralized system of managing money. Instead of giving control to a few entities, it distributes it among people. For the uninitiated, digital assets aren’t created by the government or any centralized institution.

They are created by a bunch of people using different algorithms. In the beginning, many scoffed at the concept of blockchain-based assets. While today, governments are on the verge of regulating digital assets. Cryptocurrencies have become so prevalent that they’ve established an all-new ecosystem known as decentralized finance (DeFi). 

DeFi offers blockchain-based services that have little or no interference from third parties. Taking reference from it, people have started calling the already-established finance system centralized finance (CeFi). So, on one hand, there’s a system that’s been going on for centuries, and on the other, there’s a new concept that’s offering infinite possibilities. To choose between them, users must know what either of them offers.

Exploring DeFi & Its Possibilities

The biggest highlight of DeFi is its decentralized nature. It eliminates all the intermediaries and brings two dealing parties together. It means even the regulatory bodies can’t intercept the transactions. They get executed without any go-between using a peer-to-peer model. 

Moreover, the holders of the crypto assets have total control over them. They don’t require the help of a bank or any other institute to secure them. With blockchain and a few other components, they safeguard their assets. All the transactions are recorded on smart contracts. 

They are indelible, inalterable, and always open for audits. While excluding intermediaries and bringing safety, DeFi becomes a great option for businesses. In this ecosystem, transactions are always faster and cheaper. Thus, it is certainly a considerable option for enterprises and individuals.

Pros & Cons of DeFi

Decentralized finance comes with some notable advantages. Yet, that doesn’t that it has absolutely no downsides. 

Pros

Custody– The users have exclusive control and ownership over their assets. 

Permissionless– It means that users don’t have to go through third-party verification to use a DeFi solution.

Anonymity– DeFi ensures the anonymity of all transactions to anyone except the holders of private keys.

Fees– In the DeFi ecosystem, the fee for transactions is always lower. 

Cons

Complexity– It works on sophisticated algorithms hard for most people to understand.

Security– Blockchain-based platforms have been compromised several times due to cyber attacks.

Volatility– Volatility is almost an inherent attribute of DeFi space. 

Customer Service– Since the domain runs on computer programs, it lacks options for human assistance. 

Insights Into the Established CeFi 

Centralized finance (CeFi) is what the world has been dealing with for centuries. An ecosystem involving banks, governments, and all centralized authorities. Notably, there’s considerable penetration of centralization in the crypto space too. A large number of crypto exchanges and other platforms follow the CeFi.

They do offer blockchain-based services but don’t cede control. They manage the services instead of keeping everything on a ledger-based system. Popular exchanges like Binance and Coinbase are centralized entities. Along with regulating the trades, these platforms also make KYC mandatory.

It means that the customers have to share their personal information to use their services. While it may not sound ideal for crypto users, the CeFi service often with unavoidable advantages. Needless to mention, these platforms rule out the chances of tax evasion, money laundering, terror funding, etc.

In a CeFi model, the platform holds the custody of assets. They can also intervene in the transactions and access the details. However, one must know that CeFi is often the first entry point for accessing the decentralized realm. It enables people to buy tokens with the fiat currency. 

Pros & Cons of CeFi

Centralized finance also has its notable advantages and disadvantages.

Pros

Assistance– The centralized platforms can provide good service as they manage things themselves.

Fiat Support– They become a bridge between the fiat and crypto world while allowing conversion.

Cons

Custody– The platforms keep custody of the assets and all information related to them.

Transparency– These platforms are not always keen to share everything with their customers.

Final Thoughts

DeFi has a lot to achieve in terms of scalability and security. After all, it is relatively new and still evolving. However, it paves the way for limitless possibilities for businesses and the economy. Thus, its early adapters may get some exclusive advantages too. Enterprises and individuals must make informed decisions after weighing all options. 

Steve Anderson is an Australian crypto enthusiast. He is a specialist in management and trading for over 5 years. Steve has worked as a crypto trader, he loves learning about decentralisation, understanding the true potential of the blockchain.