Decentralized Finance: An Emerging Alternative for the Financial System
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Decentralized Finance: An Emerging Alternative to the Global Financial System

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Decentralized Finance: An Emerging Alternative to the Global Financial System

Decentralized Finance: An Emerging Alternative

The global financial system has created massive wealth, but its centralized nature means the spoils have gone to the people who are best connected to the financial centers of the world.

As global inequality continues to rise, how can wealth building tools become more accessible to the rest of the global population?

Luckily, technological developments and their rapid adoption make this the right time for a new decentralized financial system to emerge:

  • The Internet: 3.9 billion users by the end of 2018
  • The proliferation of smartphones: Two-thirds of the unbanked have mobile phones
  • Digital banking: over 2 billion users by end of 2018
  • Bitcoin and Blockchain: the emergence of new public blockchains

Today’s infographic comes to us from investment app Abra, and it highlights how public blockchains could help to enable a decentralized finance system.

What is Decentralized Finance?

Decentralized finance describes a new decentralized financial system that is built on public blockchains like Bitcoin and Ethereum. After all, Bitcoin and Ethereum aren’t just digital currencies — they’re foundational open source networks that could be used to change how the global economy works.

There are six primary features that differentiate public blockchains from the private networks used by governments and traditional financial institutions:

  • Permissionless: Anyone in the world can connect to the network
  • Decentralized: Records are kept simultaneously across thousands of computers
  • Trustless: A central party isn’t required to ensure transactions are valid
  • Transparent: All transactions are publicly auditable
  • Censorship Resistant: A central party cannot invalidate user transactions
  • Programmable: Developers can program business logic into low-cost financial services

In such a financial system, users will have access to apps that use public blockchains to participate in new open global markets – but how would this shape the global financial system for the better?

The Potential Impact of Decentralized Finance

Here are five ways that decentralized finance will have an impact on the world:

1. Wider Global Access to Financial Services

With decentralized finance, anyone with an internet connection and a smartphone could access financial services. There are a variety of barriers that prevent access in the current system:

  • Status: Lack of citizenship, documentation, credentials, etc.
  • Wealth: High entry-level funds required to access financial services
  • Location: Vast distance from functioning economies and financial service providers

In a decentralized financial system, a top trader at a financial firm would have the same level of access as a farmer in a remote region of India.

2. Affordable Cross-Border Payments

Decentralized finance removes costly intermediaries to make remittance services more affordable for the global population.

In the current system, it’s prohibitively expensive for people to send money across borders: the average global remittance fee is 7%. Through decentralized financial services, remittance fees could be below 3%.

3. Improved Privacy and Security

In decentralized finance, users have custody of their wealth and can transact securely without validation from a central party. Meanwhile, in the current system, custodial institutions put people’s wealth and information at risk if they fail to secure it.

4. Censorship-Resistant Transactions

In a decentralized financial system, transactions are immutable and blockchains can’t be shut off by central institutions like governments, central banks, or big corporations.

In places with poor governance and authoritarianism, users can divest to the decentralized financial system to protect their wealth. For example, Venezuelans are already adopting Bitcoin to protect their wealth from government manipulation and hyperinflation.

5. Simple Use

Plug and play apps will allow people to intuitively use decentralized financial services without the complexity of the centralized system.

With a decentralized system, a woman in the Philippines could receive a loan from the U.S., invest in a business in Colombia, and then pay off her debt and purchase a home – all through interoperable apps.

The Potential Blue Sky

Unless governments and central banks suddenly cease to exist, it’s difficult to imagine a world where decentralized finance completely replaces their centralized counterparts.

But what if they can co-exist?

Public blockchains can interact with the traditional financial system to create a new hybrid model:

  • Users could conduct economic activity on public blockchains and exchange their new wealth into the centralized system.
  • Users could hedge against systemic risk by diversifying their wealth holdings in both the central and decentralized system.

Like the internet with knowledge, decentralized finance could help democratize the financial system.

But will we allow it?

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How Big Tech Revenue and Profit Breaks Down, by Company

How do the big tech giants make their money? This series of graphics shows a breakdown of big tech revenue, using Q2 2022 income statements.

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In the media and public discourse, companies like Alphabet, Apple, and Microsoft are often lumped together into the same “Big Tech” category. After all, they constitute the world’s largest companies by market capitalization.

And because of this, it’s easy to assume they’re in direct competition with each other, fiercely battling for a bigger piece of the “Big Tech” pie. But while there is certainly competition between the world’s tech giants, it’s a lot less drastic than you might imagine.

This is apparent when you look into their various revenue streams, and this series of graphics by Truman Du provides a revenue breakdown of Alphabet, Amazon, Apple, and Microsoft.

How Big Tech Companies Generate Revenue

So how does each big tech firm make money? Let’s explore using data from each company’s June 2022 quarterly income statements.

Alphabet

breakdown of Alphabet's revenue streams and profit

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In Q2 2022, about 72% of Alphabet’s revenue came from search advertising. This makes sense considering Google and YouTube get a lot of eyeballs. Google dominates the search market—about 90% of all internet searches are done on Google platforms.

Amazon

breakdown of amazon's revenue streams and profit

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Perhaps unsurprisingly, Amazon’s biggest revenue driver is e-commerce. However, as the graphic above shows, the costs of e-commerce are so steep, that it actually reported a net loss in Q2 2022.

As it often is, Amazon Web Services (AWS) was the company’s main profit-earner this quarter.

Apple

breakdown of Apple's revenue streams and profit

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Apple’s biggest revenue driver is consumer electronics sales, particularly from the iPhone which accounts for nearly half of overall revenue. iPhones are particularly popular in the U.S., where they make up around 50% of smartphone sales across the country.

Besides devices, services like Apple Music, Apple Pay, and Apple TV+ also generate revenue for the company. But in Q2 2022, Apple’s services branch accounted for only 24% of the company’s overall revenue.

Microsoft

breakdown of Microsoft's revenue streams and profit

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Microsoft has a fairly even split between its various revenue sources, but similarly to Amazon its biggest revenue driver is its cloud services platform, Azure.

After AWS, Azure is the second largest cloud server in the world, capturing 21% of the global cloud infrastructure market.

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Animation: The Most Popular Websites by Web Traffic (1993-2022)

This video shows the evolution of the internet, highlighting the most popular websites from 1993 until 2022.

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ranking websites by page views 1993-2022

The Most Popular Websites Since 1993

Over the last three decades, the internet has grown at a mind-bending pace.

In 1993, there were fewer than 200 websites available on the World Wide Web. Fast forward to 2022, and that figure has grown to 2 billion.

This animated graphic by James Eagle provides a historical look at the evolution of the internet, showing the most popular websites over the years from 1993 to 2022.

The 90s to Early 2000s: Dial-Up Internet

It was possible to go on the proto-internet as early as the 1970s, but the more user-centric and widely accessible version we think of today didn’t really materialize until the early 1990s using dial-up modems.

Dial-up gave users access to the web through a modem that was connected to an active telephone line. There were several different portals in the 1990s for internet use, such as Prodigy and CompuServe, but AOL quickly became the most popular.

AOL held its top spot as the most visited website for nearly a decade. By June 2000, the online portal was getting over 400 million monthly visits. For context, there were about 413 million internet users around the world at that time.

RankWebsiteMonthly Visits (May 2000)
1AOL400,891,812
2Yahoo387,573,587
3MSN354,239,803
4eBay116,101,785
5Lycos116,064,930

But when broadband internet hit the market and made dial-up obsolete, AOL lost its footing, and a new website took the top spot—Yahoo.

The Mid 2000s: Yahoo vs. Google

Founded in 1994, Yahoo started off as a web directory that was originally called “Jerry and David’s Guide to the World Wide Web.”

When the company started to pick up steam, its name changed to Yahoo, which became a backronym that stands for “Yet Another Hierarchical Officious Oracle.”

Yahoo grew fast and by the early 2000s, it became the most popular website on the internet. It held its top spot for several years—by April 2004, Yahoo was receiving 5.6 billion monthly visits.

RankWebsiteMonthly Visits (April 2004)
1Yahoo5,658,032,268
2MSN1,838,700,057
3Google1,318,276,780
4AOL905,009,947
5eBay805,474,705

But Google was close on its heels. Founded in 1998, Google started out as a simpler and more efficient search engine, and the website quickly gained traction.

Funny enough, Google was actually Yahoo’s default search engine in the early 2000s until Yahoo dropped Google so it could use its own search engine technology in 2004.

For the next few years, Google and Yahoo competed fiercely, and both names took turns at the top of the most popular websites list. Then, in the 2010s, Yahoo’s trajectory started to head south after a series of missed opportunities and unsuccessful moves.

This cemented Google’s place at the top, and the website is still the most popular website as of January 2022.

The Late 2000s, Early 2010s: Social Media Enters the Chat

While Google has held its spot at the top for nearly two decades, it’s worth highlighting the emergence of social media platforms like YouTube and Facebook.

YouTube and Facebook certainly weren’t the first social media platforms to gain traction. MySpace had a successful run back in 2007—at one point, it was the third most popular website on the World Wide Web.

RankWebsiteMonthly Visits (Jan 2007)
1Google7,349,521,929
2Yahoo5,169,762,311
3MySpace1,276,515,128
4MSN1,259,467,102
5eBay957,928,554

But YouTube and Facebook marked a new era for social media platforms, partly because of their ​​impeccable timing. Both platforms entered the scene around the same time that smartphone innovations were turning the mobile phone industry on its head. The iPhone’s design, and the introduction of the App store in 2008, made it easier than ever to access the internet via your mobile device.

As of January 2022, YouTube and Facebook are still the second and third most visited websites on the internet.

The 2020s: Google is Now Synonymous With the Internet

Google is the leading search engine by far, making up about 90% of all web, mobile, and in-app searches.

What will the most popular websites be in a few years? Will Google continue to hold the top spot? There are no signs of the internet giant slowing down anytime soon, but if history has taught us anything, it’s that things change. And no one should get too comfortable at the top.

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