ᐅ cryptocurrency decentralization ⚡ what it is and how it works

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Decentralization in cryptocurrencies – what is it?

Decentralization in cryptocurrencies – what is it?

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The first cryptocurrency was conceived as a payment method independent of states and banking corporations. Bitcoin has no owner, the blockchain is stored on multiple devices, and it cannot be changed at someone's command. Cryptocurrency assets meet the following parameters:

Cryptocurrency assets meet the following parameters:

coins have no physical expression;
transactions in the network are completely anonymous;
the network is protected against attacks;
the final emission of tokens is known, which implies the presence of deflation.

Decentralization of Cryptocurrency

Decentralization involves the interaction of network participants in the absence of a central issuer or regulator.

The emission process depends on the algorithm for proving the value of a specific cryptocurrency. For example, the Proof-of-work algorithm puts coin emission in the hands of miners. Many network participants create new coins, which increases the reliability of the mining algorithm.

Fiat money and traditional exchange assets often have a centralized owner who uses the assets at their discretion. Any serious failure of a centralized system leads to significant disruptions in the functioning of financial institutions and society as a whole. Cryptocurrencies are devoid of this drawback.

Each data node in the blockchain system has the same value, so trust in the provided information is distributed equally.

Violation of Decentralization or 51% Attack

The most dangerous phenomenon in the world of cryptocurrencies is the 51% attack. The drawback of the Proof-of-work algorithm manifests itself as follows:

an attacker captures 51% of the power and gains control;
they prevent other miners from finding blocks and conduct double-spending of coins;
gain control over fees and transactions;
split the blockchain into several competing chains.

Such attacks are practically impossible against popular blockchains, but younger projects constantly face this threat. It is the 51% attack that poses the greatest threat to the decentralization of cryptocurrencies.