Are you tired of worrying about the next recession? Hearing about how another bank might fail and worrying about what that means for you? Well, fear not! Decentralization is like the superhero of the modern world, ready to swoop in and save the day. In the world of cryptocurrencies, decentralization is not only important, but it's also the very foundation of the whole shebang.
In crypto land, decentralization means that there's no one entity or person in charge of everything. Instead, power is distributed among a network of nodes, so no one can have complete control. Sounds nice right? But how does it apply to our money? Well, remember the Banking Crisis in 2008? You know the one where the global stock markets lost an estimated $14.5 trillion in value in 3 months (yes that is a trillion with a T). It was caused by the collapse of Lehman Brothers and other banks which was a massive loss of wealth for millions of people. Instead of the traditional way of banking that puts you at risk for such losses by using decentralized exchanges, individuals can trade digital assets directly without relying on centralized banks. Which would offer you more control over your investments.
You would think this new revolutionary way of thinking would mean our banking system would want to adapt and find new ways of working. Silly reader, change is scary! Of course, the decentralization of wealth and the peer-to-peer technology could diminish the need for a bank, you would have specific financial services like payments or securitization (big word but it just means the process in which certain types of assets are pooled so they can be repackaged into interest-bearing securities) without the need for a bank. I know we all love the stress and wrinkles that come with a potential bank failure and inevitable government bailout but crypto not being tied to any specific financial institution, by nature could potentially reduce the risk of bank failures in the future.
Now let's add everyone’s favorite subject these days, inflation. Inflation is a common problem with traditional currencies, as central banks can print more money, leading to a decrease in the value of the currency. Decentralized crypto, on the other hand, has a fixed supply, which means that it cannot be inflated like traditional currencies. This makes it a more stable and reliable store of value over the long term.
Other than scattering your wealth to protect yourself from financial ruin in an economic crisis, why else is decentralization so important? Thanks for asking, for starters, it's much more secure. Think of it like trying to rob a house. If you're a thief and you know that there's a safe with all the money in it, it's much easier to break in and steal everything. But if the money is scattered around the house, you'd have to do a lot more work to get it all. (Not that we're encouraging anyone to hide money all around your house). Traditional banking systems are vulnerable to cyber-attacks which do have the potential to lead to the loss of sensitive financial information and funds. Decentralized crypto, however, uses advanced encryption techniques to secure transactions and protect user data. This makes it much more difficult for hackers to steal funds or access personal information.
Another perk of decentralization is that it promotes transparency and accountability. It's like being in a meeting where everyone gets a say. You can't just steamroll over someone else's opinion because they have just as much power as you do, isn’t that the dream really?
Decentralization also allows for more innovation and creativity. When you have a bunch of people working together, each with their own ideas and skills, you can come up with some pretty amazing things. Just think of all the crazy NFTs people are creating these days, we may need to unpack this a bit further, future blog post maybe??
Now let’s not forget crypto isn’t a perfect solution either, 2022 taught us that for sure and it’s not that far in our rearview mirror (shudder). However, maybe the smart strategy is to pivot into more of a mixed strategy. Protect some of your wealth in a decentralized system? Who knows, maybe one day we'll look back and wonder how we ever had the majority of wealth in a centralized system similar to how we look back and wonder how families really didn’t wear seat belts or even put kids in car seats!