As we learned in the previous chapter, fiat currencies are strongly tied to central banks and world governments. Cryptocurrencies, in this aspect, represent the complete opposite. Independence is definitely one of the main reasons for their creation.
With fiat currencies, central banks have complete control over the financial system. They monitor and process all transactions that take place and store all the data about them. In addition to these, they also store information about the assets that someone has at their disposal and always have the chance to look into that. But that is not the case with cryptocurrencies.
Cryptocurrencies have no central control of transactions and funds. They do not have an institution or entity that would take care of processing and validating transactions nor controlling individuals’ funds. In the case of cryptocurrencies, all this happens on a public network of computers that can be accessed by everyone and owned by no one. Such a system, in which there is no central control, rather the control is distributed, is called a decentralized system.
Computers, called nodes, confirm and record transactions in the blockchain. Blockchain works as a distributed ledger. Everyone has access to a copy of the ledger or to the blockchain, which means that it is public and anyone can see all the transactions that have taken place. This enables a secure and transparent system for carrying out transactions without the need for centralized control. Thus, there is no longer any need to trust a single entity.
The distributed power is precisely why cryptocurrencies are said to be decentralized, and this is also the most revolutionary aspect of cryptocurrencies themselves.