Decentralization is a concept that is becoming more and more popular and widespread these days. The concept is usually strongly associated with cryptocurrencies. In this article, we will analyze the phenomenon of cryptocurrency decentralization in more detail. Let’s get started!
What Does Decentralization Stand for in Crypto?
One of the most important distinguishing features of most cryptocurrencies is decentralization. However, most users know little about this concept, as well as about what pros or cons it has. And most importantly, users do not understand why decentralization is the basis of cryptocurrency.
The Importance of Nodes in the Operation of Networks
Applicable to cryptocurrencies, decentralization is when the functioning of the network is supported not by a single central authority but by a huge number of users. All of these users are connected to the network simultaneously. They are also called nodes. Each node has copies of all data about all transactions within the network. In this case, decisions on the network operation are made by all nodes at once.
That is, to confirm a particular transaction, more than 51% of all nodes must recognize this transaction as genuine.
This is how the decentralized finance blockchain, which is also called DeFi, works. And this is precisely the main advantage and difference between decentralization and centralization. In the case of traditional central authorities, the decision is made by one small group of stakeholders. For example, a bank will be able to ‘freeze’ your funds stored on a card at any time. Thus, there is a huge risk that ordinary users will suffer financial losses since they will not be able to do anything. In the case of decentralized networks, this will never happen.
What Does Decentralization Have to Do with Crypto?
Today, a large number of different cryptocurrencies exist. Each of them was created for a specific project and has its goals and objectives. Therefore, there are both decentralized and centralized cryptocurrencies. The latter ones are much smaller in number and not as popular.
This is due to the fact that cryptocurrencies were originally created as an alternative to the classical banking and financial world systems.
In turn, decentralization in the world of cryptocurrencies provides one important advantage. Any intervention (public or private) in the network, such as bitcoin, is impossible — users find this feature extremely important and convenient. Therefore, many users today are completely switching to cryptocurrencies.
First of all, decentralization allows you to be calm about your funds since not a single person or group of persons will have the right to make a decision (based on their interests) on the disposal of your funds.
This means that while your cryptocurrency is in your crypto wallet, no one can accidentally ‘freeze’ it. Also, no one can decide to remove you from your own account.
Cryptocurrency Is an Alternative to Centralization
The world’s first cryptocurrency, bitcoin, is also decentralized and was created, first of all, as an analog of traditional money, which is usually controlled by one single body — the state. Thus, people had a need to create a financial system that would not depend on a certain group of people and their interests. That is why decentralization is the basis of the cryptocurrency phenomenon.
In fact, cryptocurrency provides an opportunity to develop a financial alternative thanks to its unique features such as decentralization.
Key Risks of Decentralization to Know
When working with decentralized networks, one should always be careful, since cryptocurrencies and decentralization generate their own risks and nuances in storing and using funds in such a system.
For example, while the funds are in your wallet, they are safe from the network creators. However, there is a huge risk of the wallet being hacked by hackers. The system is decentralized, and all operations are carried out by millions of computers around the world. Thus, your PC may be infected with a virus that will give a hacker access to your wallet on the Internet. In case of theft of funds from your wallet, no one will be able to freeze, suspend, or return them since there is simply no person that would be responsible for this.
That is why when you deal with cryptocurrency and blockchain, first of all, you need to follow the security rules. It is important to take care of the safety of your funds yourself.
Can I Lose All My Funds Due to Inattention?
Another risk when using a decentralized network within the cryptocurrency segment is inattention.
If, for example, you accidentally send your funds to the wrong wallet address, then due to the system’s nature, you simply won’t be able to suspend the transaction or at least try to get your money back.
How to Choose a Reliable Crypto Exchange?
Using a cryptocurrency that operates in a decentralized network, we often resort to the services of cryptocurrency exchanges. Many of them are centralized. That is, you put your decentralized cryptocurrency in a wallet of a centralized exchange. This means that you are exposed to the same risk as with traditional banks.
Your funds are not stored in your personal decentralized wallet but in a wallet of a crypto exchange. Thus, it is extremely important to remember this when working with cryptocurrency exchanges and choosing a crypto platform. Online exchanges are not physical banks — the probability of their collapse and closure is much higher.
Therefore, when it comes to selecting a crypto exchange, security should always be the top factor to consider. From the minute you deposit fiat currency in your exchange wallet to the moment you start exchanging, every step of the process has to be secure.
Switchere is one of the most reliable online exchanges for buying cryptocurrencies. The company is a licensed financial services provider with guaranteed legal compliance and a secure infrastructure system for fast crypto exchange services at fair prices!
Conclusion
Decentralization may become the future since in such a system the community itself is the controlling body, and decisions are made by everyone at once. Moreover, any user-programmer can develop and modify such systems. After all, often such networks have open-source code that allows you to make changes within the network.
All this will increase the convenience and productivity of such financial structures, making them grow and develop faster. Also, such a system can be extremely useful not only in the financial sector but also in other areas of application.
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