Decentralized currencies, a popular term of the current time share a common method of payment and investment. Do you know why these currencies are getting so popular these days and why investors are looking at them as an investment option?
Here, we will unfold the concept decentralized currency that will lead us towards the informative knowledge of decentralized currency.
Unfolding Decentralized Currency
We can easily understand decentralized currency as peer-to-peer money that does not involve the role of any organization for its processing. We can also recognize decentralized currency as digital money that does not include the interference of banks or any financial institution for transferring money from one person to another.
Decentralized currency is way different from centralized currency. To understand much about the compatibility of the decentralized currency, we will be required to talk about the centralized currency. This will also give us a broad understanding of the difference and help us recognize decentralized currency in the market.
Decentralized currency vs. Centralized currency
Application:We can quickly identify the application of decentralized money as its utilization area is only limited to the virtual markets. On the other hand, the application area of the centralized currency can be identified in conducting the recorded or authorized transaction.
Availability:Decentralized currency is only available in the virtual form, but centralized currency can be identified in both physical as well as virtual states.
Control: Decentralized currency does not have a center point of control as no single entity controls its follow in the market. However, centralized currency possesses the central point of management as well as influenced by the activities of the government and authorities.
Platform:Decentralized currency does not require any platform for its trading. It can be traded among the investors or the buyer directly without the involvement of a third party. Here is a significant difference, centralized currency requires a systematic exchange to control its market circulation. Its operation is depended on the performance of the traditional exchanges.
Consideration:Cryptocurrency or digital money can be considered as a part of decentralized currency. Besides that, the national currency is viewed as a part of a centralized currency. It must be noted that cryptocurrency or digital money can also be a centralized currency when these are operated through authorized platforms. But, in general conversation, cryptocurrencies are considered a significant category of decentralized currency.
Currency creation:The creation and circulation of the decentralized currency are conducted by private authorities such as private companies. However, an individual with specific knowledge of technology can also create a decentralized currency. On the other hand, only authorized bodies are responsible for creating and distributing the centralized currency.
Operation:Decentralized currencies are operated through the decentralized market. The central part of the decentralized market can be the foreign exchange market because this market does not have any particular physical location for trading. This market usually performs its activities through the Internet or broker firms.
On the other hand, centralized currencies operate in the centralized exchange point with a single owner, such as the government, as it does not possess any competitor. Centralized markets have a monopoly in handling and influencing centralized currencies.
Cryptocurrency or digital currency
We already read about the portion of digital money or cryptocurrency in a decentralized currency, but do you know the meaning of digital currency or cryptocurrency and the differences in them.
- Digital technology:Usually, there is no significant difference between digital money andcryptocurrency. For our better understanding, we can effectively conclude it as a currency dependent on digital technology for its operation. However, to understand it sincerely, we can say that it is a type of currency that requires a digital computer system for its management, exchange, and storage. This digital computer system must be connected with internet-related technologies.
- Manipulation:Now, we can consider that a cryptocurrency is a form of digital currency as it requires a digital platform for its management, operation, and exchange. Hence, we can understand that cryptocurrency is a decentralized currency as it can be created by entities and cannot be manipulated through government bodies. This concern of the manipulation makes us think that if it does not require the government's intervention, then it can get heavily impacted by the market conditions.
However, these changes and the transaction of the cryptocurrencies are recorded using block chain technology. Block chain is a typical database system that ensures the recording and security of cryptocurrency data.
Drawing the relation of Elon Musk and cryptocurrency
Elon Musk, a Chief Executive Officer of Tesla Motors, is seen as the most significant influencer for cryptocurrency. It is said that if he either tweet or talk anything about cryptocurrency, the market responds to it very quickly. This company has already made many impacts on the prices of cryptocurrency. A few years back, the company declared that they wouldn’t accept bitcoin (a kind of cryptocurrency) as a payment from a customer.
This news resulted in a significant decline in the cryptocurrency market. However, after some time company commented that they would accept the bitcoin, and this news bounced its prices in the decentralized market. In the last month of 2021, Elon Musk commented in the event that they would be going to start accepting dogecoin (another type of cryptocurrency) for merchandising activities. Within the 24-hours of this news in media, the dogecoin prices reached the hike of 24% in its prices in the decentralized market.
Famous cryptocurrency codes
Following are the famous decentralized currency and their trading codes:
What about the theories assumptions associated with the decentralized currency?
Yes, there are many assumptions related to the decentralized currency.
Assumption 1: People believe that decentralizedcurrency does not have a central location forcontrol, so it cannot be hacked or stolen. This assumption became false when, in 2018, some hackers stole the $530 million worth of cryptocurrencies from Japan.
It is also identified that the dark web, a non-conventional search engine, is a massive market for hacked or stolen decentralized currencies. The dark web is considered a source of conducting illegal decentralized currency transactions.
Assumption 2: We can also highlight another crucial security concern related to decentralized currencies, like the platform used to conduct decentralized currency transactions. People also assume that decentralized currency platforms offer transparency. Still, in reality, it is possible when technology is used to enable the involved parties to agree on the sharing of data and information.
Assumption 3: People also believe that the lack of surveillance on the decentralized currency provides freedom to the users. But the lack of regulation increases the concern of protection and limits the scope of decentralized currencies use in the financial market. However, it is a fact that the lack of control over this currency does not possess any kind of recurring charges on a transaction like centralized currency maintains. So, we can use it with minimal expenses, which will benefit us.
We have discussed the assumptions that a decentralized market possesses, but just like a coin has two sides, this decentralized currency also has two sides. These are important and disadvantage.
Importance of decentralized currency
Inability to manipulate
The foremost importance of the decentralized currency is associated with manipulation. We have already discussed that government agencies cannot manipulate decentralized currency. But why it is out of reach from the government manipulation.
Government has significant power to control the fiat currency. A fiat currency refers to a government-authorized currency. This currency is issued by the government, so they have the power to control its presence in the market, but decentralized currency is not issued by the government, which reduces their area of control or regulation in the market.
The decentralized currencies market is unregulated, limiting the area government power, so it is not feasible for the government to manipulate or affect the decentralized currency through its decisions.
Decentralized currencies are considered democratic currency; the belief behind this statement is that it does not have a claim of any country due to which its prices cannot be decided by a single country. Decentralized currency circulation and demand are controlled by the general public.
For example, if people start buying cryptocurrency in the decentralized market, the prices of the decentralized currencies will rise. When the demand reduces, the prices also get reduced. Here, the government does not use any tool or method to manage the demand for decentralized currencies.
Currency of the future
Decentralized currency is considered a future currency. The outstanding reason behind this consideration is its presence at the global level. It does not have any limits and control over sharing or receiving that make people believe that it can become a future currency that will be out of control from any geographical border.
We have discussed that it is a broad concept; it is a medium of making any financial transaction and generates the opportunity of investment, just like centralized currency offers the investment opportunity in the systematically established financial market. Similarly, decentralized currency offers the investment opportunity in the cryptocurrencies like bitcoin. People buy bitcoin when they think its prices will rise in the future and sell when they believe its price will get reduced in the decentralized market.
We all have been learning in a routine life that the role of decentralized currency will increase in the future; however, people are already started investing in it as they believe that it will render a good return on their present investment in the future. The decentralized market cannot be predicted due to a lack of regulation and control measures, and the demand or supply is only dependable on the behaviour of the users.