Decentralized Currency: What is Blockchain and How Does It Work?

If you’ve been paying attention to the world of a cryptocurrency over the last few years, you’ve undoubtedly heard of blockchain technology. But what exactly is it? And how does it work? This guide will take you through everything you need to know about blockchain, its current applications in businesses and institutions, and how it will affect you in the future. Let’s get started.

What is Decentralized Currency?

Decentralized currency, also known as cryptocurrencies, allows for peer-to-peer transactions without the need for a central bank or authority. Rather than being controlled by one entity, like a government or corporation, decentralized currencies are built on blockchain technology that allows transactions to be verified on a public ledger system.

In some cases, this includes mining new blocks to add to the chain. There's no single point of failure when it comes to decentralized currency because there is no centralized bank or governing body in charge of its operations. This makes it difficult for governments to regulate these types of systems. For example, bitcoins cannot be devalued or inflated without unanimous consensus from all participants. One of the biggest advantages of decentralized currencies is they offer anonymity through privacy coins such as Monero (XMR) and Dash (DASH). 

Unlike other forms of cash such as paper bills, Bitcoin transactions can't be tracked due to the fact they're recorded on an encrypted digital ledger. The only people who know who sent what are those involved in each transaction; their identities remain anonymous so long as they take measures to protect themselves online with high levels of encryption and strong passwords.

What are the types of Cryptocurrency?

There are two types of cryptocurrency, centralized currency, and decentralized currency. 

Centralized currency means that the government controls the production of money and there isn't a physical form to the cash. This type of currency is regulated by a central authority like a bank or nation-state. An example would be the US dollar, which has been controlled by the Federal Reserve since 1913. 

Decentralized currency on the other hand does not have any central authority regulating it, instead, transactions take place from peer-to-peer over networks like Bitcoin or Ethereum's blockchain. 

Decentralized currencies can be created anonymously as well, making them difficult to track by law enforcement in some cases

The history behind cryptocurrency:

In 2009, the first cryptocurrency was created. It was Satoshi Nakamoto who first brought Bitcoin to the public's attention. Bitcoin operates on a decentralized peer-to-peer network meaning that no person or centralized entity controls it. The history of cryptocurrency can be traced back to the Austrian school of economics which states that money has three functions: "it is an official medium of exchange, a type of wealth that one can acquire, and an accurate indication of how much money a person or institution is worth". 

Cryptocurrency satisfies all these requirements. One major advantage that Bitcoin has over other currencies is its finite supply. No more Bitcoins will ever be mined. 

Other currencies like the U.S dollar are issued by central banks so their supply changes every day based on how many dollars are in circulation at any given time plus how many were printed for that day. 

In contrast, cryptocurrencies like bitcoin have a fixed supply so their values change based on how much people want them and what they're willing to trade for them rather than just a central bank's decision about how many are available in circulation at any given time. However, this also means if there are more bitcoins available then demand will go down while if there are fewer bitcoins then demand will go up and prices with rising. 

Additionally, since there are no middlemen involved in the transaction process, transactions made using Bitcoin cost less than those made with credit cards or other traditional payment systems. Furthermore, transactions using cryptocurrencies happen anonymously which makes it very difficult for governments to block transactions as well as track a person's spending habits. Additionally, anyone can create their own coin without permission from anyone else. Anyone can invest in creating and designing coins without dealing with governmental red tape as well as censorship from any kind of centralized authority figures such as someone from a government agency or regulatory commission because none exist in relation to cryptocurrencies.

What is the future of Cryptocurrency?

Cryptocurrency has made waves as a new form of currency. The decentralized system of transactions makes it easier for people to use cryptocurrency without the need for banks, which simplifies transactions. With a decentralized currency, there is no need for an intermediary such as a bank or government to be involved in transactions. However, cryptocurrencies are still quite volatile with their values changing from day to day.

The pros and cons of a decentralized currency:

The pros of a decentralized currency are that it is not controlled by any one person, organization, or government. The cons of a decentralized currency are that there are no regulations and it can be used to illegally purchase things like drugs and weapons.

 Centralized currencies are the opposite of this because they have control over who gets the money and how much they get. However, they may also be too controlling with their power so people want more control which brings us back to decentralized currencies. In order for a cryptocurrency to work, there needs to be someone supporting the infrastructure which could change with new developments in blockchain technology and more startups getting involved in this industry.

What is blockchain technology?

Blockchain technology is a decentralized ledger of records that are referred to as blocks.

The blocks are linked, creating a chain. Each block contains data about the transaction, a time stamp, and a link to the previous block. Data in each block cannot be altered without altering all of the blocks on the chain. Hence the name blockchain.

The future of blockchain technology:

Although the future of blockchain technology is still unclear, some of the potentials it holds are staggering.

Blockchain has the capability to change industries from finance to supply chain management, decentralizing power and giving people more control over their own data.

There are also a number of other benefits, such as increased security and increased efficiency in transactions. In time, blockchain may become so pervasive that we won't even be able to remember what life was like before it. "The term blockchain has come to describe an emerging family of information technologies that serve as an online ledger for various records". 

The creation and use of these chains (called blocks) involve making mathematical algorithms to process every piece of information and encode them into blocks that get connected together through cryptography and timestamps. These blocks form the backbone for managing different kinds of data with decentralized networks using distributed ledgers. With this system, there's no need for a third party or central administrator because the users can verify each transaction themselves by connecting directly to a trusted peer-to-peer network.

Where are we now with blockchain technology?

Blockchain technology is not a new concept, but it has finally become a feasible solution for businesses that want to create an immutable transaction ledger. 

The decentralized nature of blockchain technology means that the data is held by multiple parties rather than one central authority. 

This prevents hackers from being able to change the data without getting past all of the participants in the chain, as they would have to hack every individual node in order to change any information on the chain. 

At present, there are applications for blockchain technology in various sectors such as banking, insurance, energy and utilities, manufacturing supply chains, health care management systems, voting processes, and more. 

According to Forbes, IBM predicts that within five years, 15% of global GDP will be stored on the blockchain. Additionally, 70% of banks around the world are expected to implement blockchain technology in their operations by 2020. 

All told, this provides a sense of how quickly companies across industries are adopting blockchain solutions.

What are the Pros and Cons of Blockchain Technology?

Pros - "Blockchain technology can be used for anything from currency to medical data. Blockchain eliminates middlemen, making it cheaper and more secure than traditional methods of transferring and storing data" 

Cons - "As blockchain is an emerging technology, the cost of implementing the systems and training staff can be high. Along with this, a blockchain system requires the users to have a basic understanding of how it works, which some people may lack" 

The future of Blockchain Technology - Blockchain still has many unknowns, but there are a few things that we know for sure. One thing we know for sure is that as cryptocurrencies become more popular so will the use cases for blockchain technology!

 Some countries have started adopting blockchain already (Singapore) with Canada considering following suit. In the US, states like Illinois, Colorado, and Wyoming all introduced legislation in 2018 regarding blockchain. 

Looking into the future of cryptocurrency, it is expected that by 2030 1% of our GDP will go towards cryptocurrency alone (around $5 trillion USD). 

While we don't know what all Blockchain holds yet, we do know that 2018 saw great innovation when it comes to Bitcoin, and Ethereum and 2022 should hold even more!

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