Home CryptoNews Technology How Decentralization Works in the Cryptocurrency World

How Decentralization Works in the Cryptocurrency World

One of the greatest things about the development of the internet is its power to decentralize services that were once centralized. Information used to be centralized and accessible only by a privileged few. Now, everyone can access almost all the information in the world online.

The publishing of information used to be controlled by a few media companies. Now, with the internet, anyone can publish anything online, without being censored.

This decentralized transformation is happening in finance, too. The technology has now been developed and perfected, and we’re on our way from a centralized financial system, run by banks, to a decentralized system run by everyone in the world.

What is Blockchain Decentralization?

Blockchain is the most important decentralization technology developed for the internet. It is a protocol that allows internet users to communicate private information and trade valuable digital assets without the need for a third party such as a bank.

It’s implemented using computer algorithms and clever cryptography. Information is stored in a public ledger and grouped into blocks that are chained together using cryptography. This is where it gets the name ‘blockchain’.

What is the Difference Between Centralization and Decentralization?

Centralization is when something is controlled by a single authority. For example, the US dollar is a centralized currency, because it is completely controlled by the US government. Facebook is a centralized social network because the network is controlled by the Facebook company.

Most products and services in our current market are centralized. The advantage of a centralized system is that it can be run efficiently. Facebook is an extremely fast and scalable social network because it’s controlled by one party. The disadvantage is that the central authority has total control, and you users have to trust them. Do you trust Facebook with your data?

Decentralization means the activity of an organization is not controlled by a central authority but by a distributed group of people. For example, there is no central “Bitcoin” organization with a CEO that can make decisions. Instead, decisions are made by all the people that run the Bitcoin network.

These networks can be less efficient (it’s very difficult to change the core Bitcoin code), but you don’t need to worry about anyone taking your bitcoin, or Mark Zuckerberg selling your account information.

Decentralized applications are now being tested for all sorts of use cases, from cryptocurrencies to social networks.

Why is Decentralization Needed in Cryptocurrency?

Governments have control of the major currencies in the world today. The US government has control of the US dollar, the EU has control over the euro, and so on.

The currencies are stored and distributed by financial institutions in these countries, known as the banks. When you use these government-issued currencies, you are implicitly putting your trust in the governments and financial institutions.

When the 2008 global financial crisis hit, many people realized that their trust in these institutions had been misplaced. Bankers got greedy, took on too much risk, and ended up crashing the economy. The governments, in an attempt to save the economy, printed enormous amounts of money to save the banks.

A recession soon followed, and all the money printing led to inflation, causing much of regular people’s savings to disappear. Meanwhile, the bankers who caused the problem went home with the bailout money and became richer than ever.

This situation was the background for the launch of the Bitcoin whitepaper in 2008. It was a decentralized currency that couldn’t be printed by any government and wasn’t controlled by any bank. It was immune to hyperinflation, inherently secure, and it couldn’t be seized by any government.

People saw this as an opportunity for a more stable and decentralized future in finance.

Most Popular Decentralized Cryptocurrencies

Here’s a quick overview of the top decentralized cryptocurrencies.

Bitcoin

Bitcoin is the original cryptocurrency, made decentralized by its Proof-of-Work algorithm. It’s not the most efficient cryptocurrency to use, with transactions sometimes costing a few dollars and taking up to 10 minutes – but it’s known as the digital gold of the crypto world.

Ethereum

Ethereum is one of the most popular decentralized cryptocurrencies because it was the first platform to introduce smart contracts. These are self-executing contracts that run on a decentralized network.

Litecoin

Litecoin is a spin-off of the Bitcoin network that’s designed to have faster and cheaper transactions. It’s been around for a long time and is a great lightweight alternative to Bitcoin.

ZCash

Zcash is a privacy-focused decentralized currency. It is perfect for mobile payments when you don’t want anyone knowing what you’re up to.

Monero

Monero is another popular decentralized coin focused on privacy and security. It’s popular on many different crypto exchanges and has a vibrant community that uses it.

Most Popular Centralized Cryptocurrencies

Here are the most popular cryptocurrencies that are either fully or partially centralized. That means they are controlled by a single group or organization.

Ripple

Ripple is a cryptocurrency that attempts to solve the global payments problem. It’s designed for financial institutions to settle international payments instantly on the blockchain.

IOTA

IOTA is a blockchain network designed to run without fees for the user. In exchange, the user helps maintain the security of the network with computing power.

NEO

NEO can be thought of as a more centralized version of Ethereum. It’s open-source and can handle almost 1,000 times more transactions per second than Ethereum.

Conclusion

Decentralization is a key movement in the 21st century. Kicked off by the decentralization of information on the internet, it is now moving to all other areas.

Blockchain was the technological breakthrough that has allowed currencies, contracts, and value to be exchanged securely over the decentralized internet. The whole world is joining in on the action, and there’s nothing central authorities can do about it.

julia
Julia is a Cryptocurrency enthusiast, is responsible of communications and the PR department of Crypto Economy. Self-taught and eager to learn day by day about the world of blockchain and cryptocurrencies.
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