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Decentralised allows transactions to take place on a peer-to-peer basis without the need of a third party. An example is when using a debit or credit card where the bank is the third party.
However, the problem with decentralisation or DeFi, is that it is beyond the control of governments. Utilising smart contracts as opposed to intermediaries means that there is a shadow currency beyond the reach of regulators therefore making it difficult to enforce the law.
In 1983 David Chaum developed eCash where the first digital coin was invented. Only one bank in the United States took up this opportunity, the Mark Twain Bank based in St Louis. The system was similar to that of credit cards. Merchants paid nothing for the system but had to pay a merchant fee. The system was adopted in June 1998 by Credit Suisse in Switzerland, Deutsche Bank in Germany and Bank Austria to name but a few of Europe’s leading banks.
It is generally assumed that the original cryptocurrency started in 2009 and was founded by Satoshi Nakamoto. Satoshi Nakamoto is a pseudonym and no one is exactly sure of the identity of this person or persons. The new cryptocurrency “Bitcoin” was responsible for introducing decentralised digital currencies and an updated version of blockchain technology.
Blockchain technology represents a digital ledger of transactions and contains an entire network of computer systems where these transactions are distributed. The blocks that make up blockchain contain various transactions. Each time a transaction takes place every participant’s ledger receives a record of that transaction. This database is referred to as DLT or Distributed Ledger Technology.
Blockchain is a secure system that records information and has safeguards that supposedly make it extremely difficult to abuse such as hacking or trying to cheat the system. However, this appears to be a misnomer as various systems have been hacked over time culminating in the August 12 2021 hack, where a hacker stole USD 600 million from the Poly Network. Happily, most of the funds have been returned as the hacker “did it for fun”.
The key apparently for ensuring that blockchain date is manageable is by utilising an algorithm known as hashing which is used in tandem with a data structure called a Merkle Tree. A hash is a “proof of work” that assigns a block an identification code. The Merkle Tree is fundamental to blockchain technology. Basically, it is a mathematical structure composed of the hashes of different blocks of data and allows for a full summary of every transaction within a particular block.
There are nearly 200 cryptocurrencies in the world, below the 2021 top five cryptocurrencies in terms of market capitalisation are,
Bitcoin (BTC), Market Cap USD 887 Billion
Ethereum (ETH), Market Cap 383 Billion
Binance Coin (BNB), Market Cap USD 71 Billion
Cardano (ADA) Market Cap USD 69 Billion
Tether (USDT) Market Cap USD 63 Billion
To learn more about cryptocurrency, utilise our blog and discover our useful definitions list.
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