Posted by on February 8, 2021 3:12 pm
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Categories: Tech

 

By Bradley Allgood & Oliver Gale

 

Tesla’s $1.5 billion buy has Bitcoin soaring to new highs. It’s another powerful signal the market is shifting to a decentralized finance system that is transparent and secure, open to all, and immune to manipulation by political factions.

 

Decentralized finance is based on a distributed network of public blockchains, a secure digital transaction software using encryption. Information is stored and shared across a dispersed, worldwide peer-to-peer network, which limits opportunities for middlemen or central authorities to charge fees, divert capital, and interrupt service.

 

Such a system is better for both consumers and financial institutions in three key ways. First, no central authority means no one needs permission to trade, so long as they comply with local regulations. And cutting out government regulators invariably results in more efficient, open, and liquid markets. The game can’t be rigged in anyone’s favor if it can’t be rigged at all.

 

Second, encryption makes transactions safer and inherently more compliant. Users access their assets with a private digital key, a unique financial identity with autonomy in the system (“non-custodial”). And it leaves an indelible record, making money laundering much harder.

 

Third, a decentralized finance system effectively eliminates borders, which lowers transaction costs. Think about the advantage this holds. Cutting out middlemen, for example, who do nothing but pocket fees to move money across borders lets immigrants and seasonal laborers send more of the money they earn to their families back home. It also reduces opportunities for fraud and corruption.

 

A growing number of apps and services are using this technology to help people from all walks of life buy, borrow and save. AAVE offers decentralized lending, and Bitt.com, which Oliver founded, pioneered central bank digital currencies, which allow decentralized finance to be built on government-issued fiat currencies. BRD lets you store Bitcoin and other cryptocurrencies in a secure, non-custodial digital wallet. Organizations like Finastra, the world’s largest fintech provider, and Capco, a global financial service implementer, are bringing decentralized finance solutions to traditional banks and top-tier financial institutions around the world. And NEST Financial Group, which Bradley runs, has developed a set of partnerships and modular solutions to enable these innovations in any financial ecosystem.

 

The world is primed for wider adoption of blockchain to support decentralized finance. Over half of the five billion mobile phones in use are smartphones, and the proportion of the global population with internet access is growing fast. The demand is there. As public interest spikes over Gamestop and AMC stock battles, a wave of new retail investors are driving trading volumes to historic highs.

 

Smart institutions will capitalize on these trends. We’re in the midst of a historic generational transfer of wealth from boomers to zoomers. It could reach $15 trillion over the next decade. Most zoomers pay with their phones. Many have never set foot inside a retail bank. They are tech savvy, socially conscious, and globally connected. They have high expectations for transparency in government and security in banking. They’ll gravitate to financial options that offer the most transparent, secure, and autonomous access to capital.

 

Governments have both the opportunity and the responsibility to facilitate these trends. The choice is theirs. They can use these technologies to fight illegal activity like money laundering and tax evasion. Or they can fight against the social and technical tide—only to get swamped by it.

 

Treasury Secretary Janet Yellen’s recent threats of “curtailing” cryptocurrencies would take us in precisely the wrong direction. For the U.S. to unilaterally restrict Bitcoin and the like is a futile gesture in the global marketplace. All it will do is hold the country back while these technologies grow everywhere else. America would become a backwater in a world increasingly open to decentralized finance technology.

 

Our government leaders need to partner with innovators and investors. The common goal must be an open-source regulatory body to guide the transition to decentralized finance. Its core principles should be openness, transparency and accountability. These are the values that drew us to work together in this space, and they’ll continue to inspire millions to work together to make the world’s people freer and more prosperous.

 


Bradley Allgood is Chief Executive Officer at NEST Financial Group, collaborative financial solutions in a single digital ecosystem. Oliver Gale is CEO of Elemental.io, a consumer lending platform as a service, and Managing Partner of BaseTwo Capital, a quantitative digital asset fund.