If we search the word “Bitcoin” or any currency that we use in cryptocurrency trading, we come across the word “decentralization”. What does this mean? We will define this using simple terms that everyone and most especially a beginner cryptocurrency trading can understand. To make it more understandable, will compare centralized and decentralized.
Decentralization is one of the most essential advantages of using a blockchain protocol. It is significant to understand the benefits of decentralization it brings to our society.
It is when a system is being controlled by a centralized authority. The examples of centralized systems are Youtube, Facebook, Twitter and bank account systems. For you to understand it better, let’s dig into more details.
We will use Google Drive as an example. You want to upload a private document to your friend containing images from an event. You sign to your Gmail account, go to drive, and upload the document and let your friend see it. At this moment of time, think of the information that Google got from you.
When you create your first Google account, you have to provide personal details such as your full name, nationality, date of birth, etc. Subsequently, every single email that you sent was stored on the Google centralized servers.
In this way, you must trust that Google will keep all your data private. In addition, you also need to trust that they will not use this data for their advantage such as selling it to advertising companies.
But as far as we know, systems are at risk of being hacked. A group of hackers can be able to gain access to the centralized servers that allows them to view private emails with millions of accounts registered in the system. The reason they were able to access all the information is because it uses centralized servers. If the central point of the system was hacked, then the entire network is at risk.
To summarized, the three main issues with centralized system are:
1. You must trust the centralized organization that they will keep your data safe.
2. They have full control of the system and your data.
3. If the main servers are attacked by hackers, data is at risk.
Decentralization is made possible using its main feature which is called blockchain technology.
Bitcoin is the first-ever blockchain which was created in 2009. It happens when someone sends Bitcoin to somebody else, the transactions are not verified by the centralized authority. Cryptocurrency trading is only done in a decentralized way.
Anyone can connect their computer to the Bitcoin system to help to verify the flow of funds. Each computer connected to the system is called a “node”. There are thousands of independent nodes helping to operate the network.
In order to hack the decentralized system, hackers need to take control of every single node which is impossible. In conclusion, the blockchain is the safest and most secure way to send and receive funds.
The following are good to take note of decentralized system:
1. Decentralization is not only for financial transactions. It can be used in every industry.
2. People also do not need to identify themselves to interact in a decentralized system. They can remain anonymous by simply using a private and public key.
3. It operates in blockchain and controlled by no single authority, not even by any centralized government. Control is distributed fairly to anyone who wants to use the system.