Cryptocurrency is a digital asset or virtual currency that is used as a medium of exchange. Unlike regular fiat currencies like pounds or dollars, cryptocurrencies are not legal tenders approved by a government body. Rather, they offer a digital decentralized medium of exchange for internet users which is governed by cryptography.
With the emergence of the internet and its evolving unlimited possibilities, one could expect that such digital assets, which has proven to be difficult to counterfeit since inception, would emerge for internet users and not from banks. This is what makes the whole concept of digital currency very sweet to potential investors.
How Cryptocurrency operates
Cryptocurrency or crypto exchange operates on two main systems in order to function properly, either centralised or decentralized. There are quite a number of successful and upcoming crypto exchange platforms that operate on either of these systems. Many propose that a decentralized exchange could be the future of cryptocurrency as many startups using the blockchain technology are heading towards the decentralized cryptocurrency system or model.
However, there is also the issue of a decentralized model not having a place for fiat currency which allows users to invest in cryptocurrency as well as conduct other exchanges using other fiat currencies like dollars or pounds.
Those new to crypto currency are often caught in the middle of whether to opt for crypto currencies operating a centralised cryptocurrency system or the ones operating the decentralized cryptocurrency system. The reality is that both systems have their advantages as well as disadvantages.
The difference between a centralised and decentralized exchange
Centralised cryptocurrency is controlled by a third party, also known as a central party. This is because it is operated from a single point either by a government or a company, unlike the decentralized cryptocurrency system that operates a peer-to-peer exchange method, allowing it to operate from multiple points.
The implication of using the centralised cryptocurrency system is that every data processed goes through only one channel making it impossible for just anyone to process information or to even retrieve it at will. This is the complete opposite scenario for the decentralized cryptocurrency system which is a strong preacher of privacy and anonymity.
Advantages of a centralised and decentralized exchange
The upside to the decentralized cryptocurrency system is that it offers an opportunity to many more persons to process transactions. This completely eliminates the issue of worrying about processing too much data at once that could wreck the central control server protecting the data stored and processed in a single location (which could be hacked or corrupted).
The upside of the centralised cryptocurrency system is that this process makes it easy to track information on exchanges. You can know who sent what or received what. Details of every transaction carried out is very accurate, as with the decentralized cryptocurrency system which operates a digital public ledger that is collectively updated.
For the centralised cryptocurrency system that operates this way, even though this record keeping openly disclosed is great, there is still the issue of information being used against the will of concerned persons. That is why on the issue of individuals enjoying privacy when making exchanges, the decentralized cryptocurrency wins over and over again because it protects the identity of the data sent or received as well as the identity of the user.
For many who are still new to crypto exchanges, they often prefer to jump in on the centralised cryptocurrency system which involves entrusting their investments with a trusted third party; with the hope that they able to get their investment in other fiat currencies, easily and conveniently liquidate their investments at any time, as well as recover their funds easily. For many who are very experienced in the cryptocurrency world, this would be regarded as the very opposite reason for wanting the decentralized cryptocurrency system that affords them anonymity and other benefits.
How blockchain use a decentralized model
Blockchains are decentralized public digital ledgers that hold records of various transactions that cannot be altered. There are nodes that serve as administrators (which are present in devices used to carry out these transactions), during peer to peer distribution, that is responsible for entering and securing all transaction details in the public ledger. No one is primarily responsible for entering all data in the digital public leger which is accessible to all, unlike the centralised cryptocurrency system.
Now because this digital ledger is public, it becomes very difficult for anyone, particularly hackers to corrupt the ledger because there is no central version of the record. Rather it is stored on thousands of devices that have access to the internet.
The decentralized blockchain allows users to send and receive funds from anyone in any part of the world without a third party. This is one of the major selling points of the decentralized blockchain as well as the transparency of the technology.
Beyond sending and receiving of funds, blockchains can drastically improve other aspects of our lives by cutting out the middlemen involved in almost everything we do, with currency, on a daily basis; like buying of lands, houses, cars, conducting elections, record keeping for healthcare facilities, creating and monitoring contract agreements, and so on.
Creating a peer-to-peer platform that allows people to conduct their own transactions which would be visible to anyone with an internet enabled device. These transactions stored in a public digital leger is simultaneously updated by nodes that serve as administrators for anyone using a blockchain, allowing data to be owned by the people themselves rather than a central party. Owing control of data is also one of the major reasons for the birth of cryptocurrency.
Security is always a major issue in our world and the internet is not exempted from such security problems. The blockchain technology makes use of an encryption tech that is used to safeguard such digital asset; users can make use of both a private key and a public key to secure their assets off-line and online.
Decentralized exchange encourages collective responsibility. Everyone using a blockchain is collectively responsible for updating data stored on it. The collective effort involved in the decentralized cryptocurrency system is what makes it an exciting venture for any cryptocurrency enthusiast.