What You Need To Know To Understand Blockchain Technology Part 11

Decentralized nature of blockchain networks.

 

Decentralization means that on public blockchain network, there is no central authority and no central point of failure.

Satoshi Nakamoto created the Bitcoin network in 2009, right after the world financial crisis. In part, the crisis has occurred because banks in the United States were giving mortgages to anybody and everybody, including people that couldn’t really afford to pay a mortgage or buy a home. This was happening because the banks have made an erroneous assumption that property values would always be going up. Based on this assumption, even if someone can’t afford a mortgage, it makes sense to give it to them because the home will be worth more tomorrow than it is today. If the person can’t pay the mortgage anymore, he or she would be able to sell the home tomorrow for more money than he or she paid for the home yesterday and both the individual and the banks would profit.

It is not hard to guess how it ended: the values of the properties started to go down when a lot of people who could not afford to pay their mortgages anymore flooded the market with homes and the supply was bigger than demand.

Then, the government has decided that certain banks were too big to fail and gave them bailouts, which came from the treasury, meaning that it would be the regular law-abiding tax payers who would pay the bill. In essence, the government, as the central authority, has decided to shift the responsibility for the mistakes of the few players in the financial sector on the shoulders of the regular taxpayers. This is the issue with most centralized systems, be it the government deciding to bail someone out, Google changing its search algorithm or Facebook banning a certain type of ads: the people in change can make a new decision and everybody else has to live with it.

 

Hyperinflation in Zimbabwe

Zimbabwe is an example of how many things can go wrong with a centralized currency and what can happen when a government is corrupt and incompetent. The period of hyperinflation in Zimbabwe started in 1990, shortly after the government started confiscating and redistributing the land among various groups of Zimbabwe residents. It is difficult to say what the actual inflation stats were because the government stopped publishing any official numbers. According to some estimates, at the peak of the inflation in 2008, the inflation was about 80 billion percent. Within one year, the currency notes in Zimbabwe went from 10 dollar bills to 100 billion dollar bills. In 2009, the country stopped issuing its currency altogether and started using currencies of other countries, mainly the United States dollar.

 

Blockchain ecosystems

Such scenarios are simply not possible on a public blockchain because there is no central authority. This is why keeping money in Bitcoins or some other cryptocurrency and being able to withdraw the cryptocurrency via a cryptocurrency ATM could serve as a backup solution for many people. If the currency of their country were to fail, then they could still use cryptocurrency ATMs and decentralized money.

Every node and every miner on a blockchain network is an integral part of the network. All nodes and miners are equal. The code of the network is open-source and accessible to anyone, so any person can make sure that the software works as described by its developers. Because of this, shutting down a network such as Bitcoin would require shutting down all users, nodes and miners at the same time, which is virtually impossible.

The decentralization of blockchains is somewhat similar to how a search engine like Google works. With Google, thousands of users perform searches at the same time and the system works almost instantly for each and every user because this part of Google is decentralized – Google is using multiple services and while to users the homepage of Google looks the same, the search queries of different users are actually going through different servers.

 

The negatives of decentralization

The biggest negative of decentralization of public blockchain networks is that there is no customer service, no phone number to call, no chat agents to help when you need help. This means that you are fully responsible of your money and your transactions.