What is the decentralization of bitcoin and cryptocurrencies

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What is blockchain decentralization

Decentralization is the process of distributing power, finance or effort without the intervention of a global governing body. Decentralized management systems are far from new, they are present in many companies. However, in the management of finance, such a system became possible only after the creation of the blockchain chain.

In order to understand what decentralization means in the blockchain, you should turn to the system functioning algorithm. In blockchain technology, decentralization of control is carried out due to the fact that the system does not have a local server, and all miners and participants in the transaction chain are equal.

The operations on the blockchain are not monitored by developers, and transaction confirmation is carried out by network users. The technology involves the distribution of computing power and data around the globe, while information is duplicated many times to prevent loss, and DDOS attacks on such a system have zero or minimal effect.

 Why is decentralization in cryptocurrency necessary

A decentralized system provides a high level of transaction security and funds storage. Since information about the entire transaction history is stored by each of the users, it is impossible to deceive or destroy such a system. Each transaction is confirmed by several independent nodes (nodes), which makes it impossible to replace data or bribe reviewers.

Unlike the local systems that are used in banking structures, the exchange of funds through a decentralized system takes much less time and will allow you to make a huge number of transactions in seconds. Perhaps this is due to the fact that unlike banking structures, where the transaction speed directly depends on the workload and capacity of the local server, in the blockchain computing power is distributed throughout the globe, and a huge number of participants in the chain provide high power and, accordingly, speed.

An important advantage of a decentralized system of electronic currencies is the lack of external regulation. For example, if the actions of a server are considered unlawful by law enforcement agencies, they have the power to confiscate the equipment and development of the owner. And with decentralized cryptocurrencies, it will not be possible to seize either technology or power, since they belong to a huge number of people, and the technology is in the public domain and if it is preserved by at least one participant in the chain, it can be easily installed by everyone. The independence of cryptocurrencies from the authorities and regulatory authorities also excludes political manipulation of the value of crypto signs. Therefore, the rate of cryptocurrencies is an honest reflection of the supply and demand for them.

What is the difference between centralization and decentralization

The functioning of centralized systems directly depends on the authority that ensures their operation and controls. So one person or a small group of people can make decisions that will inevitably affect all participants without prior coordination with them. With the decentralization of the network, such a process is impossible, since each communication node is an equal participant in the network.

At the same time, it is the centralized governing body that is capable of ensuring competent resource management and assumes responsibility for the decisions made.

Centralized systems may be prone to fraud. While decentralization allows you to minimize all the risks associated with it, since it eliminates the bribery of management.

An example of the difference between centralized and decentralized management can be seen on cryptocurrency exchanges. Decentralized cryptocurrency exchanges developed on the blockchain technology concentrate the user’s funds in its management, while centralized exchanges provide the ability to only exchange, buy and sell crypto signs on their servers, while private wallet keys are often stored in encrypted form on the exchange server.

Unlike the centralized distribution of fiat money, when the user has only paper money and the main assets are held by the state, decentralized electronic currencies are fully and completely assigned to their owner, and only he can carry out transactions and access his vault based on secret The key. In the case of centralized fiat currencies, which are stored, for example, in a bank account, the funds are also managed by a financial institution, which reserves the right to block and withdraw funds.

List of decentralized cryptocurrencies

Decentralized cryptocurrencies are not controlled by anyone and most often have an irreversible transaction system:

  •  Bitcoin is the first and most popular cryptocurrency in the world. Bitcoin has an open and anonymous transaction system, which began its operation in 2009. In the Bitcoin blockchain, you can track the entire history of payments, but without the personalization of the owners. Emisia Bitcoin – 21 million coins. All coins are divided into parts – Satoshi, which ensures stable operation of the system. The development of Bitcoin is owned by Satoshi Nakamoto. At the moment, there is a group of developers who are engaged in improving the currency, but none of them can manage it.
  • Ethereum is the development of Vitalik Buterin, which entered the market in 2015. Ethereum has its own platform on which developers can launch their cryptocurrency projects. This currency is included in the list of the most popular cryptocurrencies and takes the second place by capitalization after Bitcoin. The main task of Ethereum is to fulfill the role of means for the exchange of resources.
  • Litecoin is the most popular fork of bitcoin, which appeared on the cryptocurrency market in 2011. This currency was developed by former Google employee Charlie Lee. The basis of the development was the creation of a more advanced model of bitcoin, which would require less computing power. To some extent, this was possible, since transactions within the system are carried out four times faster than Bitcoin. Token issue – 84 million coins.
  • ZCash is the first cryptocurrency in the world that began to operate on a zero-disclosure proof protocol that ensures complete anonymity of transactions within the system. The developer of the cryptocurrency is Zerocoin Electric Coin, but the currency itself contains open source code. The fixed volume of the maximum number of coins in the system is the same as that of Bitcoin – 21 million coins. In the transaction system, only the fact of the transaction is recorded, without specifying the wallet address of the sender and recipient, as well as the transaction amount.
  • Monero was developed in 2014. Its main feature is the ring signature algorithm, which makes it impossible to track the sender and receiver of transactions. The maximum issue of coins is 18 million and 400 thousand tokens.

The most popular centralized cryptocurrencies

Centralized cryptocurrencies are controlled by a development team. As a rule, they are behind some kind of project that has a huge impact on the cost and distribution of tokens.

  • Ripple is a centralized cryptocurrency that began operations in 2012. Ripple is actively collaborating with financial institutions and the government to make the global transaction system easier and more user-friendly. Ripple’s centralization is that each communications node that supports the network is selected by the company.
  • NEO is the most popular centralized cryptocurrency of Asia, behind the creation of which lies a platform similar to Ethereum. Each coin holder has a voting right in the management of the company, but the cryptocurrency itself remains centralized and is supported by seven trust nodes that are selected by the company.
  • Cardano is a centralized technology designed to create decentralized applications and platforms, founded by cryptocurrency enthusiasts in 2014. The development team reserves the right to influence the partnership of the company, regulate work and develop development plans.
  •  IOTA – behind the development of IOTA is a project that should implement a global network of devices connected by the Internet of things. The system will be controlled using company tokens. The cryptocurrency works on Tangle technology, where each participant who wants to complete a transaction must confirm two previous transactions of the other participants. At the moment, the currency is centralized, since the right to manage the project belongs entirely to the developers. However, in 2019, decentralization of the coin is planned.
  •  NEM is a closed-source cryptocurrency written in Java, so all rights to the currency and transaction technology are concentrated in the hands of developers. The NEM platform has a functioning algorithm that only allows customers to interact with company nodes.

Conclusions

According to some experts, with the complication of the mining process, which began to require huge capacities, the decentralization of cryptocurrencies has become a fairly conventional concept, since large data centers are able to concentrate a huge number of communication nodes and thereby control the system.

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