What is Decentralization?
Currently when you send a transaction, you must use a bank or financial intermediary. Money in bank accounts is held by banks.
The bank controls your money and charges fees on that money. While Paypal is not a bank, it is a financial intermediary and payment network.
Paypal charges fees and holds money for you like a bank account. We trust our life savings to banks and financial intermediaries. We trust they are secure and regulated and won’t collapse or steal our money.
We also trust that our identities are private and secure. That trust comes at the price of high transaction fees and being at the whims of banks or financial institutions. In countries where financial and legal sys systems are developed and regulated, it may be a small price to pay for the security of trusting a large financial institution with your money.
However, for billions of people in the world, they are unable to trust the banks, governments or legal systems in their countries.
There is no trust in centralized organizations or legal systems to protect them. Crime may also be high so transacting directly between people is dangerous. In these countries, Bitcoin allows people to hold their money outside of centralized systems and transact directly between each other with a lower risk than transacting with gold, gems or physical cash. The Bitcoin network has no financial intermediary. Funds are transferred across the network, directly from one person to another. They are transferred through the Bitcoin network, but the Bitcoin network is not controlled by one organization.
The Bitcoin network is thousands of computers around the world working together to process transactions and record them on the Bitcoin blockchain. With a financial intermediary, if someone hacked Paypal, they may be able to access the data and money of all Paypal customers.
The decentralization of the Bitcoin network means that there is no central server or database. A hacker would have to control over 50% of all the computers on the Bitcoin network at the same time. It is almost impossible to manipulate a transaction on the decentralized Bitcoin ledger.
Transactions are constantly being checked with all transactions sent to thousands of computers to validate. With centralized systems, people rely on the intermediary to perform these checks. The decentralized structure of Bitcoin, means there are thousands of computers performing these third-party checks to validate transactions between people.
With traditional financial intermediaries, bank accounts can be frozen, assets can be seized and transfers can be restricted. Decentralization means that governments or financial institutions can’t control or seize your funds.
If one computer on the Bitcoin network is shut down, there are thousands more with an exact copy of the Bitcoin blockchain that will continue to operate.
