What makes cryptocurrency a stand-out technology is its ability to create an ecosystem where transactions can occur without the need for a third party or intermediary.
Before blockchain, there were digital currencies; these currencies primarily relied on a third party.
So what makes blockchain unique? First, it offers users an anonymous experience and immutable digital ledger. These features make it possible for transactions to be conducted without any intermediary (although some experts will debate that blockchain is not decentralized).
What Cryptocurrency Achieves
Over the years, centralization has always been a problem; centralized payment methods are vulnerable to manipulation, and transactions are slow because they have to pass levels of verification.
The central authority is responsible for the coordination of the day-to-day running of the platform. Still, with Bitcoin, there is no privilege level meaning all transactions are mutually managed by all users. This means there is no need for an intermediary, and verification of transactions occurs within the ecosystem by any user.
The government can easily control centralized systems, but with decentralization, the government will find it difficult to control; that is why the SEC is still finding it challenging to regulate.
Bitcoin has no physical form – it technically exists online as a complete digital asset. If you do see it, it is in the form of lines of code in an alphanumeric string. But the bottom line is, it is a store of value void of manipulation by the government.
The only downside here is that there is nobody to regulate and coordinate the platform; for instance, if you lose your private key, there is nobody to complain or help you recover your password.
Any monetary exchange of value has to be supervised by humans or human-based centralized ledgers. Blockchain technology changes all that. It allows machines to have unique identities and hence a virtual presence.
Blockchain achieves its decentralization through automation. It helps store and process between two or more independent parties you, in most cases, don’t even know who the ordering party is. Thanks to being automated, blockchain synchronizes data across numerous servers in real-time. So, transactions like database management, auditing, inspections, and data transfer are carried out automatically without involving a third party.
Let us take auditing as an example; without government, it can easily control centralized systems with the help of any internet; blockchain chain is programmed to synchronize data, inspect database updates, and many more.
The permissionless blockchain ecosystem is more centralized than the permissioned ecosystem. For permissionless, there is almost no trace of an intermediary. This is what makes it easy for traders on Bitcoin code to send and receive cryptocurrencies.
However, in reality, many features of blockchain still leave traces of intermediaries like voting systems, national registries, trading platforms, and more; these features cannot be possible without the involvement of a third party. Some financial activists argue that despite the level of decentralization, blockchain cannot eliminate an intermediary. Whether or not an intermediary is removed or not, this is the closest any technology has come.
Cryptocurrency offers most of the solutions the financial world is looking for when it comes to payment; however, it is still vulnerable to some security threats. We have some infamous incidents in blockchain history, like the “largest digital heists in history,” when the funding of Ethereum projects got hacked. A decentralized application (DAPP) built on Ethereum currency was hacked, and the hackers gained access to about $55 million.
Nonetheless, not much damage was done because those funds were refunded. But the scar remained that made SEC subject exchanges to US securities laws. Overall it can be said that Bitcoin has successfully eliminated intermediaries in transactions.