The rise of Bitcoin cryptocurrency has shown the advantages of a decentralized currency. A cryptocurrency such as Bitcoin is a completely decentralized form of currency as there is no central bank or central authority that controls the flow of this digital currency. Everything is decided by the market and the rise of bitcoin has shown the huge potential of a decentralized currency.
The popularity of virtual currency has grown to such an extent that currently, there are over a thousand such coins available for purchase. Several other Alternative Coins are on schedule to make their debut in the market and many of these Altcoins are backed by some of the most well-known investors in the technology community.
As far as the comparison between a completely decentralized currency and a centralized currency is concerned, there are several advantages of a decentralized currency but it also has some inherent risks. Here is a list of some of the pros and cons of a decentralized currency as compared to a centralized currency.
One of the biggest advantages of a completely decentralized currency is that it is anonymous to a large extent. These currencies allow people to do all kinds of transactions without revealing their details to anyone. However, this is not the case with centralized currency as all the transactions are completely tractable as everything goes through a bank account and people behind the transactions are not anonymous. In case of a digital currency, everything happens online and the currency exchange or movement is only tractable to particular wallets.
There is no information regarding the owners of those wallets which means these are anonymous to an extent. As far as the anonymity function is concerned, some people are not in the favor of a completely anonymous currency as there have been instances where anonymous digital currencies have been used for illegal or unethical purposes.
Another big advantage of virtual currencies such as bitcoin is that it has a limited supply. All the decentralized or virtual currencies come with an upper limit which means that the algorithms or code that governs these centralized virtual currencies allow generation of only a certain amount of coins. It works like any other community that is available only in limited supply.
However, this is the not the case with centralized currency (fiat money) as a central bank or other organization is responsible is free to print as much currency as they want at any time. Printing of more fiat currency results in loss of value for the existing currency holders. Since the supply of virtual currencies is known to be limited, its value cannot be regulated by a central bank or any other organization as virtual currency can’t be generated at will. This is likely to keep the value of the digital currency consistent.
A decentralized currency is not influenced by the decisions taken by governments or central banks or other organizations. Any movement in the value of a digital currency is solely the result of supply and demand. In other words, the market determines the value of digital currency whereas central banks have a huge influence on the value of currencies under their control. This also means that no entity can manipulate the value of a decentralized currency for their own personal gain.
While there are several advantages of a decentralized currency, it also has some inherent risks. One of the biggest risks faced by decentralized currency holders is that there is no central regulator which means it may cease to exist in the future. In other words, there is uncertainty over the future value of a decentralized currency as nobody has control over this currency. Also, the lack of centralized control means that people won’t have anyone to complain to if things go wrong.
There is no insurance and if someone steals your decentralized currency, you are out of luck. The absence of a central control means that you are solely responsible for maintaining the security of your decentralized currency.
Overall, the popularity of decentralized currency has shown that there is a void in the market that has been filled by the rise of several such virtual currencies. There are some inherent risks and lack of central authority means no insurance and no protection in case things go wrong, but in terms of an idea, it is a very popular concept and many experts believe that decentralized currency will play a huge role in the future economy.