Blockchains help propagate information in a quick and decisive manner, from one part of the world to another. Building a native currency upon the blockchain with well-thought-out crypto-economic designs helps build measures against power concentration – also called centralization. But a greater benefit of these systems is their permissionless nature.
The above two adjectives combine to form the perfect financial system: one that allows everyone access to financial services and isn’t controlled and manipulable by a single entity, or a cartel of concentrated players.
Why is this important? Let’s hit decentralization first. Think of the current financial system. The power wielded by central banks across the globe is massive. As facilitators of liquidity that allow commercial banks to do as they please, they hold the “on” and “off” switches to the money machine.
On the same wavelength, the control that J.P. Morgan, Goldman Sachs, Visa, Mastercard, Wells Fargo, etc. hold over the entire world is massively undermined. These entities are the base for the economy – the global economy, that is.
Permissionlessness entails a scenario where an individual doesn’t need to be rated and appraised by an intermediary in order to gain access to financial services. Insurance is not permissionless; an insurance company can deny you coverage. Banks are not permissionless; a bank can refuse to open an account for you, or even close your account as per their will. Not even your local stockbroker is permissionless.
When we put decentralization and permissionlessness together, we end up with the perfect formula for a system that cannot be consumed by cartels in terms of either power or access. But what does this require?
A person worth $100,000 asks for a loan at their local bank; they’re given favorable terms. Another person worth $15,000 asks for a loan at the same bank; they are given the loan at a much lower LTV ratio than person one, and the interest rate for repayment is much, much higher.
In order to have a permissionless network, we need to have standardized risk parameters. To take a loan on Maker protocol, the requirements are the same across the board: 150% collateralization of ETH or BAT. Game over.
This is the base for permissionless networks. Standardization of risk parameters may offer less favorable terms to those with wealth, and they can access the treasures of the traditional financial system. However, this doesn’t stop them from being swindled and played with by executives at these institutions. At the end of the day, your loss is their profit.
What you should be seeing is that a permissionless network with sufficient decentralization is not meant just for those who are spurned by the traditional system. It lays the base for a trustless network where merit, and merit alone, is the driver of things.
This is why we need blockchain: to unshackle ourselves from the mercy of large institutions.