Will Decentralized Finance replace the Traditional Finance?

A system that emerged 16 years ago, created by an unknown innovator, has disrupted a massive economic model that has persisted for centuries. The revolution initiated by Satoshi Nakamoto, aiming to eliminate inflation, the necessity of trust in authorities, and the enormous costs incurred even in the simplest transactions, has transformed into an economic model with trillions of dollars in value today. Bitcoin, often labeled as a "bubble" over its 16-year history, mocked and declared "burst" with every decline, has recently gained acceptance as a U.S. spot ETF, and the world's largest fund companies have officially started trading BTC.

So, what does the path Bitcoin has traversed signify?

Undoubtedly, alongside Bitcoin, the first and largest cryptocurrency in its relatively short history, thousands of altcoins have emerged. Among these altcoins are models with massive technologies like Ethereum, Solana, Avalanche, each having distinct values and providing effective solutions tailored to different needs, elevating the new economic model initiated by Bitcoin to different levels.


Starting with the mission of peer-to-peer (P2P) electronic money transfer in 2008, the journey has surpassed simple peer-to-peer money transfer today. With the introduction of the concept of Decentralized Finance (DeFi), one can transfer money without the need for any central authority, lock up their funds for a specific period to generate profits, and own visual and auditory collections with artistic value (NFTs) thanks to the customization of smart contracts initiated by Ethereum.

Furthermore, one can tokenize physical assets like homes, land, and cars, sharing the profits derived from them with token holders. Beyond that, without the need for any bank and without providing any personal data, it's possible to use your assets as collateral to obtain credit. You can even put unused assets into pools, allowing others to borrow and earn income from it, acting as a kind of one-person bank.

These examples are increasing every day. With new establishments joining the sector daily, competition is growing, and the quality of services provided is continually improving. Diversifying usage areas with the emergence of new projects, these platforms attract thousands of users away from their Web2 counterparts.

Users, who spend the majority of their time exposed to advertisements on social media, can use SocialFi applications to earn income from the contributions they make to the platform. Users recommending a job posting they came across to their friends are rewarded for their contribution. Content creators can earn tokens based on the reactions to their content and the comments they make to other writers, contributing to the development of the community.

Almost all of these rewards are distributed through tokens, which are fundamental building blocks shaping this economic model. When you want to sell a token for another or convert it into fiat currency, you can use decentralized exchanges (DEX). Decentralized exchanges, essential for Decentralized Finance (DeFi), allow you to perform various transactions for certain fees.

Looking at Traditional Finance (TradFi), central banks' annually changing monetary policies, the printing of billions of fiat currencies (USD, EUR, etc.) without backing, uncontrollable inflation conditions, rising unemployment rates, diminishing purchasing power, and the inability to track many globally made expenditures, leading to an increase in corruption, tax evasion, money laundering, and more can be encountering.

Throughout history, economic models and currencies have changed many times. Economic models, needing to change at certain intervals, have given way to models that can better solve the needs of that moment. At one point, money wasn't even used. Payment for a desired product was made with another owned item, a system known as barter. Later, with the invention of money, different variations of currency developed. Now, at present, we can consider cryptocurrencies as the latest version of money. While many do not view crypto assets as money but rather as an asset class, the current classification may not matter when cryptocurrencies become the things we use in our future transactions - which we have already started using.

Can Decentralized Finance replace Traditional Finance?

Providing a definite answer to this question may seem challenging at first glance, but when we go back about 30 years and look at the technological advancements we have experienced, it can shed some light. The internet, which is now present in every home, workplace, and pocket, and used by billions of people, has only a 30-year history. With the advent of the internet, traditional finance evolved and largely transformed from physical banking to mobile banking. However, when shopping online, transferring money, or saving money, the majority of the currency we use is not real. In other words, they lack physical counterparts. Why do we accept this? Because we assume they exist. No problem has arisen yet because everyone accepts the same situation.

However, looking at the more recent past, economic crises have occurred globally repeatedly. In fact, one of the reasons for the emergence of Bitcoin is the desire to build a system that can prevent these economic crises. Indeed, it can be said that it has been successful. However, because it is difficult for this model to spread worldwide on its own, many projects have emerged that branch out this economic model and serve different use cases.

The rule-makers of Traditional Finance, the state structures, have become corrupted over time and can sometimes take unpredictable steps, even exhibiting behaviors contrary to economic science. The decisions made by a few individuals in a leadership position, which force millions of people to bear the consequences of their wrong/self-serving decisions, often lead individuals struggling to sustain their own lives to resort to borrowing. However, rather than systems that secure the user, there are systems that attempt to protect capital owners, so people borrow again to be able to pay off their debts. This situation progresses in a cycle after a certain point.

While those who dominate Traditional Finance are capital owners, government officials, rule-makers, and large corporations, in Decentralized Finance, the situation is almost the opposite. Systems that ignore the user's earnings, operate without taking scientific measures, aim to manage affairs with arbitrary governance, and do not disclose steps that concern everyone cannot stand.

Decentralized Finance, which is user-focused, where every transaction can be tracked, where the economic model is visible and questionnable by everyone, where community voting is conducted for any new decision, and where contributors to the community are rewarded and honored, may not replace Traditional Finance in the near future but is believed to at least significantly challenge and take over its role.

Thank you for reading so far. Feel free to share your thoughts on the topic in the comments, let's discuss.

Best wishes,