Since its launch in 2009, Bitcoin has prompted the development of an entire industry centered on blockchain technology and digital currency by offering decentralized alternatives that increasingly disrupt conventional financial services.
Today, there is a strong and growing rivalry and interaction between decentralized finance (DeFi) and centralized finance (CeFi) – even within the crypto-industry. With cryptocurrency trading, for instance, most tokens are traded on centralized exchanges (CEX), but you can also use decentralized ones (DEX) if you choose to. In addition, derivative providers like easyMarkets allow speculation on crypto prices against the US dollar, without requiring ownership of the underlying coins.
What is DeFi in cryptocurrency?
Decentralized Finance or DeFi aims to provide a platform for a full spectrum of financial services, from loans & mortgages to asset trading and everyday banking. It requires no formal exchange to make financial transactions, instead using blockchain technology and cryptocurrencies while operating peer to peer.
It’s sometimes referred to as the ‘wild west of crypto’ and is based on the idea of having a private, fair and transparent system that doesn’t discriminate based on the user’s personal circumstances. You’ll have full control and authority over your assets and strategy, and you access it via a personalized key and wallet.
The upside of DeFi is that there is no middle-man involvement. Users can check to see if transactions are correctly and securely executed with external tools, instead of contacting a customer support network, as there is no such intermediary body. If you’re considering using DeFi, you’ll be putting some trust in technology.
The downside of DeFi is that it doesn’t really allow for fiat currency transactions, and the security is totally dependent on the type of technology you’re using.
What is CeFi in cryptocurrency?
Centralized Finance or CeFi has been around for thousands of years in its various forms, and was the standard for trading crypto-currency prior to DeFi coming online.
All transactions are handled through a central exchange, and there are generally regulations, permissions, and fees involved in operating in this way. Not to mention that you don’t actually own your crypto, and you won’t have a wallet.
The upside of CeFi is the perceived level of safety and trust that the system provides as you’re interacting more with humans, and less with technology. CeFi has entire departments dedicated to the customer service experience. It also provides more flexibility for fiat conversions and transactions, unlike solutions from the DeFi sector.
Even though the exchange can be at the mercy of security threats on occasion, the risk is shared between the user and the exchange.
Both DeFi and CeFi have their pros and cons, and the way you choose to do business or trade will depend on your personal interests and circumstances.
DeFi promotes anonymity and transactions without the need for intrusion from middlemen. You’ll need to know what you’re doing and put some trust in the technology. CeFi is more focused on security and your personal customer experience. You’ll have less overall control and probably spend more on fees, but it’ll feel more secure. You’re trusting the people and the business.