What Is A Centralized And Decentralized System In Bitcoin?
Bitcoin is a decentralized system that became popular after launching in 2008. The biggest reason for the popularity of bitcoin is it’s a decentralized system that makes it different from fiat currency. No one can control bitcoin, even the founder of bitcoin Satoshi Nakamoto. Fiat currency such as USD, INR, POUNDS, EURO, etc., is a centralized system that means it is a currency regulated by the country’s government. But bitcoin is the free currency to use, which means no one can stop you from using it if it is not banned. In this article, we will discuss the centralized and decentralized system in bitcoin. So without wasting time, let’s explore the centralized and decentralized system in the bitcoin network.
What is bitcoin?
As we all know, bitcoin is the globally accepted famous currency used by millions of people for their daily transactions. However, Bitcoin is more than a currency; it is not just a medium of exchange. You can do multiple things with bitcoin, such as trading, investing, sending, receiving, mining, earning, etc. Furthermore, Bitcoin is a decentralized system that third parties cannot control over it.
Decentralized system in Bitcoin
A decentralized system means where there is no central point. In simple words, a decentralized system means that the third parties such as the government, banks, other financial institutions, or even the founder of bitcoin cannot control it. Decentralization is the powerful system in bitcoin because no one can hack this system. Many miners work behind the bitcoin network, and if you want to hack the bitcoin, you have to hack all the nodes of miners all over the world. Bitcoin is unstoppable because no one can stop bitcoin. There are three cases to halt the bitcoin given below: –
- When the governments of all the countries ban bitcoin, that is impossible because many countries are generating revenue through bitcoin, so no country wants to stop its economic growth.
- If all the users will sell all the bitcoins and stop using them, that is also impossible. There are multiple uses of bitcoin, such as trading, investing, sending, receiving at low transactional cost. Many businesses are accepting bitcoin as payment and expanding their business.
- If all the miners will stop mining bitcoins, that is also impossible. Miner gets 6.25 BTC as a reward for solving a network block, and who will miss this opportunity?
The government regulates fiat currency, and financial institutions are charging a high amount for international transactions. Still, the decentralized system of bitcoin becomes the more significant advantage for people to use it more and more for every transaction.
A centralized system means a system where there is a central point. Bitcoin exchanges are the most prominent example of a centralized system—the other models of centralized systems such as banks and other financial institutions. The individual or group of individuals regulates these institutions. If something wrong happens, then it will affect the entire system.
There are a lot of bitcoin exchanges on the internet, like the bitcoinsystem.app that a lot of people use for trading and investing. And some of them got hacked in the past few years. As a result, many people had lost their bitcoin worth millions of dollars. Once you lose the bitcoin, you will never get it back again because bitcoin does not support users of the centralized system, but people are using it.
Nutshell difference between the centralized and decentralized system in bitcoin:
- Meaning: – Centralized system is a system that is controllable or manageable. On the other hand, a decentralized system is not controllable or manageable by third parties such as banks, financial institutions, or the government.
- Example: – A centralized system is fiat currency, bitcoin exchanges, banks, financial institutions, etc. On the other hand, an example of a decentralized system is bitcoin.
- Privacy: – In a centralized system, your information is not private. The institution’s staff can see your personal information and can share the information with a third party. They can suspend your account if you break any terms and conditions; they can alter your data. On the other hand, there is complete privacy in a decentralized system because you are the actual owner of your account. No one can control or change the data except you.
- Owner: – In a centralized system, managers or the controller are the owners, but in a decentralized system, you are the owner or controller or manager.
- Wallet: – You will get the single wallet in a centralized system, and if you want a new wallet, you have to take their permission. In a decentralized system, you can create multiple wallets according to your choice.