You will find that decentralization is listed as a feature of most cryptocurrencies available on the market today. However, it is important to know that not all of them have the same level of decentralization. The simple explanation is that such digital currency is not controlled by any official institution.
Therefore, it allows a free market. The best example of that is Bitcoin. You can learn more about the features of BTC if you visit icoholder.com. Also, we are going to introduce you to some of the most popular decentralized cryptocurrencies and their features.
1. The Importance Of Decentralization
The key is that there are no official instances that could control the blockchain in any way. It is controlled by the market. Even though there is no central authority, the system is highly safe. There are users who are providing resources and keeping the code running properly. It is completely transparent and miners are those who have to accept the changes on the network for each transaction.
One of the main reasons why Bitcoin was introduced in the first place was to offer a new solution as a way to create an independent financial system. That idea was brought in 2008 during the serious worldwide recession. Using it allows people to avoid various policies introduced by official institutions and banks, while one of the main benefits is saving your assets from devaluating due to inflation.
2. What Are The Main Benefits?
As we already mentioned, one of the core features is that you can use it as an alternative to keep your assets safe from inflation. The crypto market is independent and does not follow the same trends and changes as the standard financial system.
Also, it is much easier to send and receive funds globally. We all know how complicated and slow it can be when you want to send money to someone in another country. Besides that, you will have to pay additional fees.
The value of one unit is determined by the demand and some other factors, and the price is the same in the whole world, while there is no way to add any sort of additional policies over it. Moreover, it is much safer when compared to bank transactions. You will need a digital wallet, which is protected by the blockchain and can be accessed only with a private key.
3. Most Popular Options
We will start with Bitcoin, which is the most popular type of blockchain-based currency. The interesting thing is that even the creator of this system is anonymous. The blockchain is using the proof of work method to store data and allow transactions.
The computers that are providing resources to this system are called nodes. There are more than 15,000 of them at the moment. That is one of the core features related to decentralization. However, we have to mention that it could become an issue if most of nodes start being controlled by a small group of people.
There are some challenges in recent years that makes it less profitable to become a miner due to expensive equipment, more difficult processes, and high cost of electricity. It will remain decentralized as long there are a lot of miners from all over the world.
Another type of blockchain-based currency that we have to mention is Ethereum. It is considered to be even more decentralized than BTC even though there are nearly three times fewer nodes active. It also shares a lot of features, but offering some advantages as well, especially when it comes to smart contracts.
Also, the challenges are the same. The owner of the blockchain, Vitalik Buterin, represents the central authority. Besides that, the problems with the concentration of nodes can become a problem in the future. On the other side, the model this system is using to confirm transactions is proof of stake, which is idea in terms of keeping it independent.
When it comes to Litecoin, it is also one of the first cryptos that were introduced on the market. There are many similarities with the BTC since they are both using proof of work. The negative side of this option is that there is a central authority, which is its creator Charlie Lee. Still, the miners are widespread. Another benefit is that the transactions on this platform are much faster when compared to BTC.
4. Impact of Online Exchanges
One of the main challenges related to free system without official instances that could control the transactions is the possibility to fund criminal and terrorist organizations, but also to avoid paying taxes. That is the main reason why online crypto exchanges are so important. A lot of countries already introduced new regulations and taxes on crypto. Therefore, if you made some profit while trading with these assets, be sure to report that.
These online platform are used for conversions and trading. You will need to create a profile, which makes it less decentralized. In that matter, even though there are decentralized coins that you can buy, the problem could be the fact that central authorities will know more about your transactions since you will have to use this platform.
5. Problems With Centralized Cryptocurrencies
It is simple to understand why it is important for the crypto market to stay decentralized. When there is a higher instance that owns most of the assets on the system, it will also have the power to introduce certain changes in its favor, such as a certain value, limits, and more. When it comes to official institutions, their introduction of digital currencies won’t be any different from standard fiat currencies.
Last Words
There are many indications that the whole world will face another recession. Therefore, investing in decentralized crypto can be a great way to save the value of your funds. These digital assets are not following the same trends as standard financial system. The most important factors that are affecting the value of one cryptocurrency are supply and demand, additional fees for electricity and equipment, regulations, but also trends and predictions.
