The Basics Behind Decentralization & Blockchain Technology

Good Afternoon, with all the craziness happening in the market recently, I want to take a step back and breathe and touch the actual idea of what cryptocurrency revolves around. That idea being a decentralized blockchain.

This post can be one that you show a beginner into the crypto-verse with cryptocurrency, or when you are at a family gathering and people question your interests or investment strategy (probably because they have no idea what you are doing). You can baby step them into realizing the potential within the decentralization of blockchain technology. Two things will happen at this family gathering: 1)They see where you are coming from, or 2) Shut down and reject all that you say because it is foreign to them.

---Disclaimer: I am not giving investment advice, I am only making you aware of the recent news regarding cryptocurrency so you can better understand the coin, technology, and the overall effect cryptocurrencies are currently having in the world we live in.---

Question: What exactly does decentralization consist of?
Answer: "[Decentralization] is the dispersion and distribution of functions and powers." (Merriam-Webster.com)

An example of decentralization in our everyday world could be something as simple as Yelp users and their reviews. Any Yelp user can take a picture of the restaurant they are eating at/the food they are about to eat and upload it to the Yelp website. If you have ever found yourself in a new city or searching for a spunky new restaurant to try out in your town, you probably look at the reviews and recommendations of fellow Yelp users. Each user can rate the business (usually 1 to 5) with stars correlating with how their experience went.

This is a form of decentralization because the restaurant's power and influence is not solely on the profits it makes through transactions, but power is given to the people. Let's say you are choosing between two restaurants. Easy Eats has an average star rating of 4.4, and Macro Bites has a 3.6-star rating. Most people are sold here and choose Easy Eats. If not, you read the reviews more in-depth and choose from there. Your choice may have been influenced on how other people perceived the restaurants you were deciding on picking.

Another example of decentralization is Flixster and choosing what movie to watch based on the critic and audience score. I do this almost all the time because who wants to waste time on a bad movie? Not me! You are using, in a sense, a decentralized platform. Individuals can express opinions on a matter in which they had experienced. The allowance of individual expression is a form of decentralization.

I hope you get the gist of what decentralization can do for you and a community no matter the scale. Now, let me ask this: "What is Blockchain technology?"

Answer: "Blockchain technology can be used to create a permanent, public, transparent ledger system for compiling data on sales, tracking digital use and payments to content creators, such as wireless users or musicians." (Wikipedia)

Many companies and industries are currently implementing blockchain technology within their business. I will name a few right now: Spotify, MedRec, and the food industry.
Spotify uses blockchain technology with Mediachain Labs by connecting artists with licensing information and solutions within data storage on Spotify.
MedRec uses blockchain in an incredibly resourceful way. MedRec is a medical company that has businesses in the United Kingdom, Europe, and the USA use their blockchain platform. MedRec allows certain medical providers safe and secure access to patient's records. In using blockchain technology, time, the cost of data transfer, and duplication of identification documents are reduced significantly. (Forbes)
Lastly, the food industry. I will keep this area short because I have a Supply Chain Management post that goes into more detail regarding the potential of blockchain use in the food industry.
Imagine full transparency when buying fruit. When you scan the QR code on the label, you can see all the history of the fruit. Full transparency allows the customer to have all the information in front of them before making their consumer choice. (Refer to my first post!)

Now we know what the two are separate from one another, let's look at what happens when you combine decentralization and blockchain technology.

Drum roll, please...

Question: "What is a decentralized blockchain?"
Answer: The process of decentralization in the blockchain is the transfer of power from a single entity (the restaurant) into a distributed network (Yelp users) all the while having transparency in the ledger.

That answer right there (^) is cryptocurrency in a nutshell. I am now going to use Bitcoin as an example of a decentralized blockchain cryptocurrency.

Bitcoin allows users to access their accounts (wallets) without any outside permission. Examples of outside permission would be banks. In a traditional bank, you have multiple accounts (checking, savings, retirement, etc.). You allow your money to be facilitated as the bank wishes when you use them as financial security for your assets.

I'm sure you have heard the term "Bank Run". If not, a "Bank Run" is when clients of a bank all simultaneously withdraw their money. This happens when clients think the bank is failing and will be unable to return the assets to their clients. The Federal Reserve will compensate for lost funds, up to a quarter of a million dollars ($250,000).

Let's throw out an example. There is a global halting virus that causes unemployment to rise and millions of people all across the United States are laid off due to the spread of this deadly virus. Uncertainty is at an all-time high. Stock markets crash, businesses file for bankruptcy, and the suicide rate skyrockets. There is a bull run at your bank. Your bank only has 3% of its reserves on hand (that is the amount legally required in the USA).
Scenario One: You are unable to withdraw your whole account because the bank does not have the cash on hand to give you and every other client demanding their money. The Federal Reserve reimburses the bank and you get all your account back.
Scenario Two: You are given a percentage of your account and the Federal Reserve will reimburse you with part of your account. Since your account was over the Federal Reserve reimbursement amount you only receive $250,000.
Now, yes there is the loophole of having more accounts to disperse your cash if it exceeds the Federal Reserve limit, but the principle of the matter is what concerns me.

Within Bitcoin, or even a stable cryptocurrency (USDC) which is backed off of the United States Dollar, you do not have to worry about a run on your bank or the Federal Reserve being unable to reimburse you.

I'll leave you with this, I do not think Bitcoin is the new and improved form of currency. It is too slow (30-35 mins a transaction). I do think bitcoin is a storage of value though. Just as gold is a store of value, Bitcoin can be seen as such on a cryptographic scale.

I plan to continue this conversation in another post, but that post will be for individuals with prior knowledge and familiarity with the algorithms used. Mainly Bitcoin's SHA-265 and Ethereum's Ethash algorithms. As well as the significance of the ERC-20 token.

Until next time,
-Seth Hinkle

Citation's:
Marr, Bernard. “30+ Real Examples Of Blockchain Technology In Practice.” Forbes, Forbes Magazine, 14 May 2018, www.forbes.com/sites/bernardmarr/2018/05/14/30-real-examples-of-blockchain-technology-in-practice/?sh=2211b301740d.