Blockchain is the foundation of nearly everything you’ll learn about in the burgeoning field of cryptocurrency, and so understanding the basic concepts behind this technology is important if you’d like to start trading digital assets.
After all, you wouldn’t use that credit card in your wallet without learning how credit works, right? Let’s dive in and help you find your footing in this new financial era.
What it is
Decentralization is a process that spreads out power and resources in order to avoid giving one leader too much.
In traditional finance, money is ruled by banks. Banks are a central authority. So what would happen if something terrible happened to banks? It would be a disaster. Evidence shows that if someone hacked any of the top five U.S banks that almost 40% of the U.S banking network would be harmed. This means that one bank could influence almost half of an entire country.
Decentralization is what makes cryptocurrency so different from normal finance. It lets the computer power and resources of every user come together to keep the currency safe, secure, and usable.
How it Works
Decentralization has many components. But two are the most important, especially for cryptocurrency.
Decentralization spreads out power.
Decentralization motivates others to keep the system running.
Cryptocurrency uses something called a blockchain to decentralize money. A blockchain is simply a series of transactions that are publicly accessible. Imagine a shared document where you could easily see the transactions of everyone who used that currency.
Each block is a group of transactions, and you can think of the chain as what links the blocks together. So in a blockchain, you have groups of transactions that are linked together.
Since a blockchain is public, it is powered by the cryptocurrency users. Everyone has access to the same information. When you buy or sell your cryptocurrency, your transaction is added to the public blockchain.
Blockchains also spread out power by combining automatic computer processes and investor input to run the whole operation. Instead of giving the power and workload to the leader of an organization or company, blockchains give power to the investors themselves. Investors help run the system by doing things that contribute to network maintenance. These tasks may include verifying transactions or creating a new block.
Investors are motivated to perform these tasks because completing them successfully results in a generous financial reward. When Bitcoin first started, anyone who successfully created a new block was rewarded with 50 Bitcoins, worth almost $2,000,000 today.
How You Can Benefit
Decentralization gives everyone the chance to have a voice. Cryptocurrency takes responsibility and power away from leaders and gives them to the people. This is fair and just, greatly lowering the chance of corruption.
By decentralizing your financial life and using cryptocurrency you are participating in a group who benefits by benefiting you. Blockchains are extremely hard to attack, making them more secure than banks.
You also have the potential to join those who help maintain and keep the network secure. By doing this, you’ll be rewarded for your contribution.
Decentralization allows everyone to help make important decisions. It’s a system that promotes justice and equality, ensuring that no one is silenced. By using cryptocurrency, anyone can be their own bank. Blockchains have no CEO, and neither should you.