Why Is It Important for A Cryptocurrency to Be Decentralized?

Why Is It Important for A Cryptocurrency to Be Decentralized

The creator of Bitcoin, known only as Satoshi Nakamoto, is unidentified. There isn’t much information available about this entity other than that it introduced Bitcoin to the world in 2009 and vanished after a year, never to be seen or heard from again. As a peer-to-peer electronic cash system, Bitcoin was first introduced. Its goal was to make it possible for users to send and receive money online without the aid of intermediaries using different bitcoin trading software. Third parties might be payment processors like PayPal or financial institutions like banks.

There is no single point of failure:

A single point of failure is a component in a system that, if it malfunctions, renders the entire system inoperable. In other words, if it collapses, everything collapses along with it. One letter from the SEC could change any Nasdaq’s or PayPal’s regulations or policies, and they would be obligated to follow them. You might also want to consider knowing about the Regulation of Cryptos here.

Whether or not their consumers are satisfied is irrelevant. They will be put out of business if they refuse. This has happened numerous times, as well. Even a tiny amount of pressure from the SEC watchdogs can significantly influence Mega corporations’ decisions.

When the Libra association, a group that supports Facebook’s proposed cryptocurrency, began to have issues with the SEC, Visa, Mastercard, eBay, and Stripe all withdrew. Blockchain and cryptocurrencies won’t have this issue because of decentralization because there isn’t a single controller. Nada! Decentralized.

The permanence of records:

Immutable records can be found in decentralized blockchains like the Bitcoin network. Let’s use Bitcoin as an example merely for the sake of simplicity. As soon as a transaction is recorded in a new block, it cannot be changed in Bitcoin.

Two factors enable this:

  • An independent peer-to-peer network
  • Mining Proof of Work
  • You don’t need to know that right now, so don’t worry if you’re one of the people that doesn’t comprehend mining.
  • Remember that records cannot be altered as long as most (at least 50%) network users are not working together to do it.

Censorship opposition:

Although censorship is possible for Bitcoin, it is more effective for other decentralized networks, such as Memo. Like Twitter, Memo is a decentralized social networking site. You can publish anything you want, including porn, political commentary, and other contentious material. Why? Because all posts are immutably saved on a decentralized blockchain record. Decentralized blockchains allow for the flourishing of free speech. 

Inclusiveness:

One could see inclusiveness as a progression from censorship resistance. Sufficiently decentralized blockchains are all open source. So, anyone can sign up for the network. The blockchain doesn’t care about your identity, origin, or past actions. You are welcome to access it if you desire. You are unstoppable.

And decentralization is a requirement for making this happen. This feature is absent from centralized blockchains like those used by businesses and banks. To join, you need to get permission from an admin. The advantage of cryptocurrencies is lost without decentralization.

Meritocracy:

A meritocracy is a system in which accomplishment, intelligence, and effort determine who gets to make decisions. Sufficient decentralized blockchains are less likely to make assumptions about social status or wealth than semi-centralized ones. Instead, through a decentralized voting process, people would be encouraged to wager on the most outstanding candidates to enhance the system.

Even then, their political influence is relatively small. They are limited to making proposals, and it is up to the populace to decide whether to accept them. Peter Todd and Adam Back are two of the top developers in the Bitcoin network. Adam is an expert because he invented Hashcash, the forerunner to Bitcoin that I previously discussed. 

Enables individuals to possess their data:

Centralized websites like Facebook, Twitter, and Google earn from your data. Their primary source of income is that. Of course, there are other advantages, such as customized search results, relevant postings in your newsfeed, etc. However, since they have access to your data, you must believe they won’t jeopardize it. 

Here are some of the most significant historical data blunders: Three billion email addresses at Yahoo were compromised. First American Financial Corp. Due to lax security, 885 million financial records were exposed. Due to lax security, Facebook had 540 million user accounts exposed.

Final Thoughts:

There will be more than 5,000 digital currencies in the next few years. A sizable portion of them is centralized or appears to be centralized. We should emphasize the significance of decentralization in cryptocurrency projects as a result. Decentralization, however, is only a strategy. We desire immutability, inclusiveness, meritocracy, resistance to censorship, and all the other advantages of it.

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