You are currently viewing Cryptocurrency and Decentralized Networks |  by Jon Law |  Coinmonks

Cryptocurrency and Decentralized Networks | by Jon Law | Coinmonks

Cryptocurrency essentially aims to solve the issue of trust and decrease systemic latency through decentralized networks. Centralized networks, which exist in the supermajority of organizations today, base themselves around some kind of central structure. In these systems, control is placed in the hands of a small subset of people or technology, and access is limited. This inherently leads to a multitude: issues: subjectivity, single points of failure (eg, one engineer working with outside collaborators to steal from a bank), imbalanced decision-making and awareness, lack of individual incentive (to make change), and so on. Additionally, centralized systems tend to lack transparency, efficiency, security, and trackability. Decentralized networks, which operate through distributed networks of nodes (computers on the network), offer all those things: enhanced security with no single point of failure, masterful efficiency through automation and removal of various centralized bottlenecks, complete transparency and trackability through a public system of record, decision-making open to parties in the network, and so on. This isn’t to say the question of centralized versus decentralized systems and organizations has a fully correct answer: both have pros and cons. For example, it is fair to say that centralized control in times of war is a much better system; one adept general is superior to a board of a dozen. Yet, by this same mark, the decision on whether to go to war in the first place is much better made in a decentralized manner and through the combined output of many different opinions.

medium.com

In the past, centralized systems have dominated, and human systems generally tend to trend towards the centralized: many farmers to one city, many political parties to two, movie theaters to a few large streaming services, and so on. The specific types of decentralized and distributed networks and the benefits enacted by such networks have only become viable in the past decade or so through the discovery and implementation of new technology, and for that reason decentralized systems are being implemented to massive effect all over the world and in all areas of the world. The specific type of technology that has incurred this growth is blockchain — blockchain networks are essentially a new type of database, and a new means of transacting and storing value and agreements. They do this through decentralized networks of computers that connect to shared systems — the Bitcoin network, for example, operates upon many thousands of individual nodes. Data is encrypted through a hashing process (which essentially scrambles text) and validated by nodes on the network. In this way, even if individual nodes are corrupted, attackers cannot breach the system since many other uncorrupted nodes simply check and invalidate the information a corrupted party is delivering to the system.

https://blockchain.ieee.org/

When information is transacted on a blockchain (eg, when party A sends money to party B), information asymmetry is leveraged through the use of a private and public key — even though the attacker knows the system and the means by which the data (data Meaning the encrypted transmission) is transacted, the attacker cannot break the system because party A and party B, through code on the blockchain, leverage their private keys (in combination with hashing algorithms) to successfully transmit data. Blockchain networks require no trust whatsoever, since the code of the system is unalterable, and records are completely public and viewable through public ledgers. No middlemen are needed, overhead, transaction costs, and errors are reduced, and systems are more efficient than centralized alternatives. These applications have led to the widespread adoption of blockchain across supply chain, data management, verification, digital identity, IP, dApps, and many more fields.

So, what’s next? Blockchain will continue to rapidly implement itself across all forms of technology and the community. Cryptocurrency will continue to pump, dump, and polarize, until some sort of filter event (at the very least, natural selection) identifies the rare winners and many losers. Decentralization will continue to grow as an idealogy, yet vouchers for decentralization will face resistance from those in uniform centralization organizations and with everything to lose. Innovators will continue to innovate, developers to develop, and users to use.

New to trading? Try crypto trading bots or copy trading

Leave a Reply