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Are traditional finance and cryptocurrency compatible?

Traditional finance and cryptocurrency. A review by a Bitcoin mixer: mixer.money
Are traditional finance and cryptocurrency compatible?

  1. What is traditional finance?
  2. Centralized vs. decentralized finance
  3. The role of traditional finance in cryptocurrency

In a short period of time, cryptocurrency has evolved more radically than money in the traditional financial world. This niche is governed by its own set of rules and models, totally unrelated to the rest of the financial models. New technologies and approaches make it an exceptional phenomenon.

For the most part, investors in cryptocurrencies have limited tools and knowledge of conventional finance – they often just do not need it, as they were led into the cryptosphere by curiosity and the desire to make a quick buck. However, these two worlds have begun to merge – separate concepts and strategies are now colliding. It is already obvious that a lot of ideas from conventional financial environment are gradually being applied to cryptocurrency. Crypto investors need to learn to understand traditional concepts and how they can be applied to crypto.

What is traditional finance?

These are methods used for years. They involve taking out loans, overdrafts, and creating accounts at banking institutions. An example is going to the bank to get a loan or using a card to withdraw cash from the bank.

An investor deep in thought. A review by a Bitcoin mixer: mixer.money

Traditional finance often means having investors who make rational, considered decisions, acting in the face of risk and uncertainty. In addition, traditional finance can be defined as normative because established rules and regulations are followed by everyone everywhere. These rules, however, do not depend on personal opinion or feelings, rather they are based solely on facts, which is why many people call this type of finance objective.

Centralized vs. decentralized finance

The key difference between centralized (CeFi) and decentralized (DeFi) finance is the model of exchange. With centralized finance, the system is managed by a single body that sets the rules and enforces them, being responsible for the transactions. It is also responsible for the risks.

Decentralized finance, on the other hand, is governed by technology – a computer algorithm, for example. DeFi users access financial services through decentralized applications (dApps), a platform that uses smart contracts and DAOs for self-automation. With DeFi, there are no intermediary differentiators. These are replaced with smart contract protocols.

dApps – decentralized applications.

There are other differences between the two, as well. For example, CeFi facilitates fiat-to-crypto conversions and cross-chain solutions. This means that if necessary, the CeFi body can transfer funds to help its users in cases such as requesting credit or overdrafts, or blocking all transactions in emergencies such as hacking.

With DeFi, everything is transparent and confidential as the systems are configured not to request for personal user data; nor are they custodial (as distinct from CeFi). Moreover, there are no transaction restrictions, and it is impossible to block trading.

The role of traditional finance in cryptocurrency

The biggest role traditional finance can play in cryptocurrency is providing maturity and security. In blockchains, it is important to consider the imperfection of the ecosystem and the fact that this is still in its nascent stage.

Bitcoin, which is the oldest cryptocurrency, has been around for 13 years. In comparison, the oldest surviving bank, the Banca Monte Dei Paschi di Siena, was founded in 1472. Traditional financial institutions have been around for centuries and their system is well established and time tested.

Due to the latest projects and trends such as NFT, DeFi, IDOs, etc., cryptocurrencies are on their way to becoming long-term and entering the modern economic world. However, there is still a severe lack of insurance, protection or even expertise to create a new financial paradigm.

This is where traditional finance experts come to the rescue with their understanding and experience of the concepts that applied to institutions a decade ago. One can think of cryptocurrency as a student learning from an experienced teacher. However, completely copying security methods would destroy the main idea of blockchain – independence and privacy. Therefore, blindly following the experience of the traditional financial system will only be detrimental.

There is no denying that traditional finance has the knowledge to solve some of the biggest problems in the cryptocurrency industry. For example, an average crypto investor may not see the potential or risks associated with new coins, while experts in traditional finance can figure out such issues early enough.

Finally, though cryptocurrency is in vogue in the financial world right now, it does not make traditional finance useless or obsolete. In fact, traditional finance can play an important role in the development of new digital finance.


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