Decentralised Finance: Bitcoin is the Trojan Horse for the DeFi Revolution

In today’s Money Morning…no more middlemen…death of the salesman…bitcoin’s latest boom is just the beginning…Australia gets a slap on the wrist…and more…

Yesterday I talked about the incredible resurgence of Bitcoin [BTC]. Highlighting the possibility of the cryptocurrency’s potential to break new all-time highs in the near future.

Not to mention a bold prediction from one analyst that it could hit US$318,000 in a year’s time.

Today though, I want to talk about a more important crypto boom. One that has less to do with eye-popping returns, and more to do with long-term disruption.

After all, bitcoin’s original goal wasn’t to make people rich — it was to replace an outdated and shoddy monetary system. One that is pushing the limits of economic theory and in many people’s eyes, is headed for collapse.

So, with that in mind, I want to share with you an important tip. One of the first key insights that I learnt when first getting into crypto…

Price doesn’t matter.

Too many people still view bitcoin and cryptocurrencies as a whole, as a get rich quick scheme. And there is certainly nothing wrong with that — many people will make a lot of money from speculation.

But, the real change (and the real long-term value of crypto) is not just about returns. The real goal is to create financial instruments that you never need to turn back into dollars.

And right now, crypto’s best bet of making that happen is through DeFi.

No more middlemen

Decentralised finance, or DeFi for short, is in many ways an evolution of bitcoin.

They have taken the blockchain technology and expanded it into new solutions. Using it to decentralise more than just a single currency.

As a brief explainer, the entire ethos behind bitcoin is that it is a decentralised currency. No one person, group, or government has the ability to interfere with it. This is all facilitated through the blockchain technology and its intense cryptography.

What it means for everyday people like you and I though, is that there is no risk of currency manipulation. Unlike fiat currencies, central bankers or government bodies can’t meddle and torpedo bitcoin.

This is what it means to have a ‘decentralised’ system. Which is why they often hate it so much.

DeFi though, takes this idea to entirely new levels. Expanding the decentralised ethos to not only the currency itself, but also more complex services and solutions.

For example, as one Associate Professor notes in The Conversation, thanks to a range of DeFi projects, people can now:

  • Borrow and lend cryptocurrencies
  • Make wagers on outcomes using cryptocurrencies
  • Create and trade derivatives of other assets
  • Buy and sell stablecoins which are pegged to the value of real-world assets or currencies

Obviously, that may seem superfluous at first. After all, you can already do all of that without the need of a cryptocurrency.

Which is true.

But I guarantee that every time you do so, you have to pay some sort of fee or expense. The price of working with an intermediary such as a bank for loans, a bookkeeper for betting, or an exchange for derivatives.

DeFi projects don’t have this.

Their entire goal is cut out these middlemen. The people profiting off our everyday transactions.

They want to create a system that is run peer-to-peer. Meaning that the only transaction that happens is between a buyer and a seller. Whatever it may be that they are trading.

Death of the salesman

Now, even if you aren’t, and have no intention to invest in crypto, DeFi is still important.

Because right now there are thousands of projects being developed with DeFi in mind. All of which rely on the fundamental blockchain ethos. Granted, most of them are also reliant on Ethereum [ETH] — the second biggest (by market cap) crypto available.

For that reason, Ethereum has the potential to be a far better long-term investment than even bitcoin. At least, that’s my opinion.

It will all depend how the ongoing development of the project will unfold. There is a possibility they fail, or perhaps even a better system presents itself. But right now, Ethereum is building the foundations to dethrone the entire financial services market as we know it…

To give you some perspective, globally, the financial services market was worth US$22 trillion last year. An industry that comprises banks, asset management, insurance, brokers, and of course, transactions.

If DeFi ever goes mainstream, that is US$22 trillion that will stay in the hands of the buyers and sellers. Ensuring that your money remains your money. The end of ‘fees’ as we know it.

Which is why we’re seeing some of the more perceptive players in this industry start to adapt. PayPal, for example, recently greenlit the use of cryptocurrencies. Allowing users and merchants to buy, sell, and hold a range of popular cryptos as of 2021.

This isn’t because they’re trying to be progressive, or necessarily accepting of crypto. Rather, it is pretty damn clear that they can see the writing on the wall. And rather than be snuffed out, they’re trying to get ahead of the change that is coming to try to secure some sort of future.

As they coyly note:

In addition to providing these significant cryptocurrency services, PayPal has been exploring the potential of digital currencies through partnerships with licensed and regulated cryptocurrency platforms and with central banks around the world. For the past five years, PayPal has increased its focus and resources on exploring the next generation of digital financial services infrastructure and enhancements to digital commerce through an internal blockchain-focused research team.

The fact that central banks are developing their own cryptocurrencies also plays into this. Embracing all the benefits of a digital currency, while also retaining full control.

That is why DeFi is something any investor can’t afford to ignore. Because like it or not, as I said yesterday, change is coming.

It is simply a matter of what this change will look like.

But if I was a betting man, I’d wager that DeFi will be the ultimate winner. A system that will upend the way we think about money and transact. For the better of each and every one of us.

Bitcoin’s latest boom is just the beginning. The real revolution is yet to come.


Ryan Clarkson-Ledward Signature

Ryan Clarkson-Ledward,
Editor, Money Morning

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Ryan Clarkson-Ledward is an Editor at Money Morning.

Ryan holds degrees in both communication and international business. He helps bring Money Morning readers the latest market updates, both locally and abroad. Ryan tackles all the issues investors need to know about that the mainstream media neglects.

Ryan is also the Editor of Australian Small-Cap Investigator, a stock tipping newsletter that hunts down promising small-cap stocks by dissecting the latest events affecting the world.

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