If you are interested in cryptocurrency, like Bitcoin and other altcoins, you have probably heard about decentralization. This is one of the most groundbreaking features of the new currency. But, what is the definition of a decentralized currency? Let’s take a closer look at what a decentralized currency is, and how it is different from a centralized currency. Lets also discover how it will change the world!
What is Decentralized Currency?
A Cryptocurrency is a digital asset that is designed to work as a medium of exchange that using cryptography to make transactions more secure and to control the creation of additional units of the currency. Cryptocurrencies were classified as a subset of new digital currencies and also classified as a subset of other alternative currencies.
Bitcoin became the first decentralized cryptocurrency in 2009. After that other cryptocurrencies have been created and these are frequently called altcoins, as a blend of bitcoin alternative. Bitcoin and its derivatives use decentralized control as opposed to centralized electronic money or centralized banking systems. The decentralized control is related to the use of bitcoins blockchain transaction database in the role of a distributed ledger.
A decentralized system doesn’t have one person that controls everything. Instead of a government that prints money for itself, everyone can mine Bitcoin. Instead of putting trust in a government to back a currency and maintain its value, Bitcoin’s value comes from the network of people using it. Every person in the network is connected to every other member, so there’s no central point of failure. If any one person, or a group of people, disappear tomorrow the value of bitcoin will be unaffected by their absence.
Everyone who owns an appropriate hardware and 24×7 internet connectivity, can mine cryptocurrencies. It is a kind of digital currency that offers an extreme level of transparency because cryptocurrency transactions undergo with peer-to-peer networking. The blockchain technology enables everyone to see the dispersed online ledger which is being updated with each transaction. By seeing the open source code, any one may know how exactly cryptocurrency works.
A decentralized network relies on a host of computers. As a result, blockchain technology resides on a P2P network. It physically cannot work with a single computer or point-of-connection. Instead, it requires a slew of other computers to join in, in order to complete a specific task on the network.
What is a blockchain, though? It’s a constantly growing chain of ordered information (i.e. blocks). These blocks have a timestamp, and a link to the previous block. The great thing about these blocks is they’re built in such a way that they cannot be modified once they’ve been recorded. What this means is that once information is there, it stays there. You can’t go back in and manipulate it somehow, post creation.
In this way, blockchains are secure by design. This is because the information is not only timestamped, it’s also stored in such a way that you’d have to get into every single computer at the same time, to hack into the network.
Blockchain technology, and in turn decentralization, is an effective way to work around the hacking weakness. So, storing information on a peer-to-peer network is best in terms of security.
The advent and rise of blockchain technology and cryptocurrency have created more opportunities to for decentralized markets to operate. Through such technology and mediums, buyers and sellers are afforded a sense of security and trust in transactions without the need for a central clearing house to monitor and affirm the transactions.
Decentralized exchanges are a popular way to trade Bitcoin and other cryptocurrencies without the restrictions of larger centralized platforms. They allow users to buy and sell cryptocoins from each other without the involvement of a middleman or a third-party.
All decentralized cryptocurrency exchanges require users to register for an account before they can trade, however, once they do, they can list cryptocoins to sell, or buy someone elses, almost immediately.
Benefits of Decentralized Currency
Decentralized cryptocurrencies like Bitcoin and Ethereum have strong advantages over centralized financial systems, primarily because of their ability to function and operate without a single point of failure, which hackers and bad actors can target.
Decentralized internet currency represents an evolving view of how information can change the world. From the way you use and spend money to the way you communicate to the way you vote and register for services, blockchain technology bears the potential to change the conversation on how everyone works and lives.
Faster Transaction Processing
Regardless of holidays and weekends, users of Bitcoin and other cryptocurrencies like Ether can freely transact on a peer-to-peer basis, through the utilization of wallets. Blockchain-based cryptocurrencies provide transaction times that are often much, much faster than bank transaction times. For some bank transactions, such as wire transfers, it can take days for the transaction to go through. However, transactions made on a blockchain usually take just minutes. The fact that transactions can be made faster through blockchain-based cryptocurrencies without losing any accuracy is potentially beneficial for countless individuals and businesses around the world.
If money can flow faster then moves can be made faster, decisions can be made faster, goods can move from point a to point b faster, etc. Increased transaction speed is a good thing for the global economy.
Because blockchains are open-sourced ledgers, and because every single transaction is recorded on them, it is very easy to tell if fraud is taking place. The integrity of blockchain systems is monitored and maintained by miners who validate transactions all day every day. There are thousands and thousands of miners validating blockchain transactions all around the world at any given moment in time. This gives decentralized blockchain-based cryptocurrencies an enormous amount of oversight and makes them nearly invulnerable to fraud.
No Government Meddling
Blockchain-based cryptocurrencies are not controlled by any government, bank, or central bank. This means that they cannot be meddled with by governments. Government meddling is a problem that has led to the devaluation of many currencies throughout history.
One problem that frequently occurs when governments meddle with currencies is that they end up creating inflation or hyperinflation by debasing, devaluing, and/or printing too much currency in a short of a time. With decentralized blockchains, it is impossible for governments to meddle with cryptocurrencies because governments, in fact, do not have control over them. Nobody does. This is because decentralized virtual currency is essentially just a software program with a finite amount of coins. This makes them extremely resistant to hyperinflation, unlike national fiat currencies.
Increased Financial Efficiency
Decentralized blockchains allow transactions to be made directly from person to person without the assistance of a third-party. This dramatically improves financial efficiency and allows people to be less reliant on banks or other financial institutions. This can save a lot of people money for people in fees and other costs associated with using banks. This feature of blockchain technology is very appealing to many people who wish to save money in their finances.
Store of Value
Bitcoin, a digital cold, has many of the features of gold. For example, there is a finite amount of it, it has to be mined, it is desirable in many different countries, etc. Because of its qualities and the fact that it is “digital gold,” Bitcoin and thus blockchain technology in general, can be a very effective way to store value.
Also, Bitcoin and other blockchain-based currencies have one major advantage over gold and other precious metals as a store of value, they can be stored on computers or mobile devices and sent over the internet. This means that people do not need to buy safes or security deposit boxes at banks to store their wealth like they often do with gold.
Decentralized Currency Dangerous
This decentralization is also a key factor in bitcoin and altcoin volatility. Many of the cryptocurrencies that use decentralized blockchains are extremely volatile. For example, it is not uncommon for Bitcoin prices to fluctuate 20% or more in a single day. Part of the reason why there is such extreme volatility for cryptocurrencies is because they are extremely new. This means that governments, investors, businesses, and other groups of people are trying to decide whether or not they want to adopt them which can cause a lot of volatility.
However, despite the excessive volatility, the price of Bitcoin and a lot of the other primary cryptocurrencies has continued to rise over the years in an upward trend. This means that many people are still choosing to adopt them, and that the overall market cap for cryptocurrencies is still rapidly expanding.
One day, the market cap for cryptocurrencies may find equilibrium, and that could decrease volatility significantly. However, that may not be until the market cap reaches trillions of dollars. Right now it is only a few hundred billion dollars for all cryptocurrencies. At any rate, volatility right now is something that is still considered a disadvantage of decentralized blockchain-based cryptocurrencies.
Due to the anonymous nature of decentralized blockchains and the cryptocurrencies that rely on them, they have become somewhat of a preferred financial instrument for criminals. One example of this is the fact that the illegal, underground, digital black market “Silk Road,” relied heavily on Bitcoin for transactions. On this website, people could buy things such as illicit narcotics with blockchain-based cryptocurrencies. However, this market place was shut down just a few years after it went live, as soon as the FBI became aware of its existence.
However, many people still believe that this technology is too appealing to criminals, and makes it too easy for them to finance illegal activity without being detected. In the near future, stronger regulations could be put in place to prevent blockchain technology from being used for illicit purposes.
Storing blockchain-based cryptocurrencies can be a problem for people who are not tech savvy. Secure storage is relatively simple for people who are. In fact, it can be achieved fairly easily through the purchasing of the so-called “cold storage” wallets such as the Trezor. However, the average person may struggle to create a Bitcoin or Ethereum wallet and transfer their coins from a digital wallet onto a cold storage wallet, which is completely disconnected from the internet (unless you connect it). This can create a bit of a problem for many people.
As a result, a large number of cryptocurrency holders store their cryptocurrencies on the exchanges themselves. This can be a problem because cryptocurrency exchanges are a target for hacking. Mt. Gox, the largest cryptocurrency exchange in the early years of cryptocurrencies was completely hacked and had all of the Bitcoins of its users stolen. This was an epic hack and resulted in millions upon millions of dollars being lost.
Non-custodial cryptocurrency wallets enable users to remain in full control over their funds, by only allowing users to gain access to their private keys and no other centralized entity or platform. As such, Bitcoin wallets like Blockchain, Trezor and Ledger cannot refund transactions or recover user accounts once the private key is lost, encouraging users to be more financially aware and responsible.
Centralized vs Decentralized Currency
Governments regulate banks, and in return, banks get the protection of law enforcement and economic investment. Central banks control the borrowing rates, keeping a hand on the throttle and brake of how a currency inflates or deflates. Private companies auto-debit bank accounts for bills and direct-deposit paychecks for employees. But what would happen if none of this occurred?
Talking about digital currencies, everything is created by and enforced only by those who hold the currency. In other words, it is the purest expression of the free market, the invisible hand decides everything and the only method for staying honest is dependent on the community.
|Centralized Currency||Decentralized Currency|
|The value of centralized currency is represented in physical currency – paper bills, coins, bank transfers.||Decentralized currency’s value is represented by the currency’s “coin” – an encrypted piece of computer code that is difficult to reproduce, but easy to verify.|
|Slow transaction processing that are not available during weekend and public holidays.||Quick transaction processing regardless of holidays and weekends.|
|A centralized currency is one where the currency is controlled by a singular entity (e.g. bank, government).||A decentralized currency is one that uses multiple entities to operate the coin, spreading the load of a blockchain across multiple nodes (computers).|
|Centralized (fiat) currency offers physical medium of exchange.||Cryptocurrency allows to exchange digitally.|
|Centralized currency can be generated by government according to market requirements because there is not limit decided.||Creation of cryptocurrency is limited to certain extent.|
|Centralized currency is generated by each country’s mint that is controlled by government of respective country.||Decentralized cryptocurrency is generated by using computer in which extremely difficult mathematical puzzles are being solved and the reward for the right solution is digital coins.|
|This currency is used to fulfill almost all purposes within a country and some powerful currencies like USD, Euro and Yen, are used globally to manage international contracts.||Crypto can be used majorly for online operations to buy or sell anything keeping internet as the base.|
|It is possible to counterfeit Centralized Currency because it involves third party interference.||But to counterfeit Decentralized cryptocurrency is next to impossible as it is being secured by cryptographic code.|
|Centralized platforms do not allow anonymous trading accounts on their platforms.||Decentralized cryptocurrency exchange platforms are all about anonymity.|
Decentralized Currency List
Is bitcoin a decentralized currency? Yes, it is. And not only BTC is a decentralized currency. Let’s take a look at the list of most popular decentralized private currencies:
- Bitcoin (BTC)
Bitcoin is the worlds first peer-to-peer decentralized digital currency, which is now not only the most recognized and known cryptocurrency, but also the only digital currency that is most widely accepted and used in numerous real-world transactions. With Bitcoin ATMs and widespread knowledge and adoption, it is now easier than ever to mine and obtain Bitcoins and make actual transactions.
- Ethereum (ETH)
Ethereum is a decentralized platform for applications that run exactly as programmed without any chance of fraud, censorship, or third-party interference. It enables Smart Contracts and Distributed Applications (ĐApps) to be built and run without any downtime, fraud, control or interference from a third party.
The applications on Ethereum are run on its platform-specific cryptographic token, ether. According to Ethereum, it can be used to “codify, decentralize, secure and trade just about anything.” Following the attack on the DAO in 2016, Ethereum was split into Ethereum (ETH) and Ethereum Classic (ETC).
- Litecoin (LTC)
Litecoin was launched in 2011 an is one of the initial cryptocurrencies following bitcoin. It is often referred to as ‘silver to Bitcoin’s gold.’ It was created by Charlie Lee, an MIT graduate and former Google engineer. Litecoin is based on an open source global payment network that is not controlled by any central authority and uses scrypt as a proof of work, which can be decoded with the help of CPUs of consumer grade. Although Litecoin is like Bitcoin in many ways, it has a faster block generation rate and hence offers a faster transaction confirmation. Other than developers, there are a growing number of merchants who accept Litecoin.
- Stellar Lumens (XLM)
Stellar is a decentralized, hybrid blockchain that is fully open-source. It is infrastructure that exists to facilitate cross-asset transfers of value, including payments. It is a not-for-profit project that aims to offer everyone equal access to easy banking methods. Stellar provides nearly all the types of services you want from a banking institution, but on a decentralized network with no greedy bank taking your money in the form of fees. Remittances are simple, letting you send money across various borders for a fraction of what a traditional bank would charge.
A lumen, or XLM, is the digital currency unit behind Stellar. These are the native assets, meaning they are built right into the network.
- Dash (DASH)
Dash (originally known as Darkcoin) is a more secretive version of Bitcoin. Dash offers more anonymity as it works on a decentralized mastercode network that makes transactions almost untraceable. Launched in January 2014, Dash experienced an increasing fan following in a short span of time. This cryptocurrency was created and developed by Evan Duffield and can be mined using a CPU or GPU. In March 2015, ‘Darkcoin’ was rebranded to Dash, which stands for Digital Cash and operates under the ticker – DASH. The rebranding didnt change any of its technological features such as Darksend, InstantX.
Centralized Cryptocurrency List
But not all cryptocurrencies are decentralized. It means that decisions are made not by the community (like with Bitcoin), but the company that owns it (like with Ripple).
- Ripple (XRP)
Ripple is a real-time global settlement network that offers instant, certain and low-cost international payments. Ripple “enables banks to settle cross-border payments in real time, with end-to-end transparency, and at lower costs.”
Ripple’s XRP is one of the top most centralized coin in the market today. It has partnered with banks and governments to make global payments easier. And Each Unique Nodes List (UNL) supporting the Ripple network is actually selected by the Ripple company.
Released in 2012, Ripple currency (XRP) has a market capitalization of $1.26 billion. Ripple’s consensus ledger (its method of conformation) doesn’t need mining, a feature that deviates from bitcoin and altcoins. Since Ripple’s structure doesnt require mining, it reduces the usage of computing power, and minimizes network latency.
IOTA is a revolutionary cryptocurrency and platform, created specifically for the concept of the Internet of Things. It does not resemble any other project or coin, which makes it unique and very promising. IOTA is both a cryptocurrency and a system for instant micropayments without any commission.
IOTA does not look like Bitcoin or Ether, because it does not actually use blockchain. This platform uses a special Tangle log, based on the DAG-directed acyclic graph.
The main advantages are the absence of commissions, the possibility of conducting micro-transactions, and the high speed of operations. All these advantages are provided by Tangle.
NEO is a blockchain platform that allows for the execution of trustless smart contracts. That means that, like Ethereum, it can be used for financial transactions, but it also can serve as a platform for more complex interactions and fully-featured distributed apps (dApps). Its been called Chinas “Ethereum killer” because of its similar functionality
The NEO token itself has some unique features. Unlike most tokens, its not divisible, meaning that you cant own 1.5 NEO or 3.8453 NEO, you can only hold NEO in whole numbers. Many cryptocurrency exchanges allow you to purchase NEO in fractions, but the currency can only be transferred to wallets (or counted for network stake and voting rights) in whole numbers.
Transferring NEO is free, although some exchanges add their own transaction fees, a private-wallet-to-private-wallet transaction costs nothing.
Cardano, found online at CardanoHub.org, is an open source blockchain technology project. Like similar projects, Cardano consists of a platform and a cryptocurrency. Cardano’s cryptocurrency, Ada (ADA), currently sits in the top 15 largest cryptocurrencies by market cap.
Cardano claims to have more advanced features than any other protocol ever developed. The development team claims that its ADA cryptocurrency is “the most precisely engineered cryptocurrency yet”. The platform incorporates concepts like distributed systems, mechanism design, and cryptography, and the Cardano cryptocurrency is the first to be based in Haskell code, an industrial-strength language.
The blockchain uses a unique proof of stake algorithm called Ouroboros. It also has a foundational settlement layer linked to a control layer in a unique way. Ouroboros is a proof of stake algorithm created specifically for Cardano. The algorithm determines how individual nodes reach consensus about the network. The algorithm is the foundational layer of the Ada cryptocurrency.
Future of Decentralized Currency
Decentralized currencies represent an evolving view of how information can change the world. From the way you use and spend money to the way you communicate to the way you vote and register for services, blockchain technology bears the potential to change the conversation on how everyone works and lives.
|Security (Cyber threats)||With the whole system fragmented without a central authority, the chances of cyber hacks lower down.|
|Accountability||With an entity looking after all the transactions, the accountability of every transaction can be established. If one is able to trace their transactions in case of frauds and counterfeits, both Anti Money Laundering (AML) and Know Your Customer (KYC) concerns be taken care of.|
|51% Attack||The process of adding transactions onto the ledger, popularly known as mining, is the backbone of the whole crypto process. In case of decentralized currencies such as bitcoin, mining is done by ledger processors (miners), individuals who use mathematical algorithms to ensure transactions are recorded safely. The individual miners however can organize themselves into larger groups known as pools. When a pool obtains majority (51%) of a decentralized network’s mining power, it could enable massive double spending and will have the ability to prevent transaction confirmations, among other potentially atrocious acts.|
|Stabilizing agent||For residents of countries that have destabilized fiat currencies, a decentralized currency can serve as a stabilizing agent and an alternative.|
|Lack of devaluation||Decentralized currencies are not subject to geographically-based exchange rates, meaning that goods and services bought with decentralized currency will not be devalued due to tariffs or unfavorable changes in national monetary values.|
|No inflation||Decentralized currencies are immune to inflation or deflation.|
Decentralization is a way of taking power away from big institutions and distributing it to everyone else. It’s one of the most exciting things about Bitcoin and a big breakthrough in thinking about how the world can be organized.
Financial freedom and independence provided by Bitcoin and other cryptocurrencies in the market are largely beneficial and crucial for individuals and businesses operating in regions wherein government entities control banks and financial institutions.
Blockchain, and decentralized (peer-to-peer) networks are poised to become the biggest thing in the future. In addition to affecting large companies, it’s a great tool for the individual.