DeFi vs CeFi: Which One Should You Opt For?
DeFi vs CeFi: Which One Should You Opt For?
Going back hundreds of years in ancient Mesopotamia, people used to trade through bags of grains and precious metals like gold and silver, among many other things. It was the time when centralized finance was first introduced. People realized that a currency can have an intrinsic worth, for instance, real estate, or can be given a fixed value, like money. The foundation of a stable currency and a financial system was based on the example of centralized finance.
Decentralized Finance aims to remove the need for an intermediary like a bank and provide direct control to the user. It also gives users transparency and ease of access, so they know what is going on in the backend and have no fear of hidden terms and conditions. Some people debate that it isn’t a safe system because everything is done online. But after the release of the new Ethereum code, Ethereum 2.0, it showed that DeFi would revolutionise traditional trading methods.
Comparison of DeFi and CeFi
The properties which stand out the most in both systems are discussed below:
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Verification
To be enlisted as non-custodial decentralised finance, the applications processing and bytecode should be verified publicly on the blockchain despite not being often open-source. Unlike centralized finance, the users of DeFi can see and authenticate the processing and execution of the state changes. Transparency and user independence is the reason for DeFi’s popularity and the power of the people’s trust.
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Anonymity
People have no problem if their data is online, but they do not want everyone else to know it is their data. This is the exact problem which DeFi solves. All of the user’s data, market charts, facts and figures are public, but others won’t know whose data it is. The prime example of it is the anonymity of Bitcoin’s creator. Smart contracts help users to mine the crypto without any reserves. dApps can function without the intervention of a front end so that users can engage with the Smart Contracts directly. CeFi does not provide any of that, so it loses a mark here as well.
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Transactions Fee
As DeFi operates on Smart Contracts, the transaction costs are minimum, but they have to charge you something in order to avoid spamming. But in the case of CeFi, they can offer free services if forced by the organisations or the government, which makes it a good option.
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Working Hours
CeFi has fixed working hours. Most US markets are open from 9 am to 5 pm EST, making it a bit tough for daily workers and non-US citizens to participate in the timed schedule. DeFi, on the other hand, provides 24 hours service on all days of the week. But there is a problem with this. It does not provide pre and post-market trading, whereas with CeFi during these times, liquidity on a wide range of items is often low.
Final Verdict
Your choice of system depends on how you want to work. If you are comfortable with CeFi, then you should opt for it but keep in mind that the processes won’t be automated. You must go to an organisation, broker, or bank to mention all your demands. In the case of DeFi, everything will be automated. You must put your information, trading platform, and investment amount. But, there is no privacy in DeFi. So, if you’re all right with your assets being shown to everyone anonymously, go for DeFi.
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