A bank is part of the state. An average bank is part of the financial system. Figuratively speaking, the state could make the sole decision that kittens will now back the national currency. Citizens start breeding cats, and being a breeder would now be a respectable profession, and so on. Such a property makes the bank part of a centralized system.
Each account holder is identified by both the state and the bank itself. The system knows the account holder’s first and last names, registration address, place of residence, occupation, and income level. It would be unpleasant if this data fell into the wrong hands. Yet, this regularly happens. This makes banks non-anonymous, meaning that they keep data about users.
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Bank employees can make extra money by selling data. When the bank’s help desk calls a customer, the operator always knows the customer’s first and last names, and the answer to the passphrase. This is necessary for the bank to deal with customers. However, it also means that the bank’s data is not encrypted. Every employee can find out your full name, place of residence, income level, and occupation within the banking system. Access to the data is controlled by security, but it is impossible to erase people’s memory. This makes banks unencrypted databases.
Banks only know how to work with people who fulfill contracts. People execute contracts, as well as authenticate and create them. This makes banks conditionally programmable, but limited within the classical financial system. A bank needs thousands of people and their cooperation to function properly. Transaction delays are a consequence of different banks and payment systems interacting with each other.
Cryptocurrencies are, therefore, similar to banks, but without the participation of people and the state.
Cryptocurrencies are also part of an extensive system, but there is no central minority that will say, “from now on, all coins are equal to one kitten.” This system is called a blockchain. Many users make cryptocurrency decisions with equal votes. No one can force a turnout in the blockchain or give out passwords and names. This makes cryptocurrencies decentralized.
Blockchain has the ability to issue new currency. In the world of cryptocurrency, the process of issuing new cryptocurrencies is called “mining” and can be carried out in many forms: from “digging” with video cards to using an asset delegation system where cryptocurrency is passed to nodes in order to be saved.
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Other participants cannot identify the cryptocurrency holder. Cryptocurrencies are completely anonymous and do not store the owners’ names, nor do they share their full names. Anonymity is the basic idea behind cryptocurrencies and is needed for blockchain participants to make decisions without prejudice.
Cryptocurrency transfers are instantaneous. Cryptocurrency payments take anywhere from 3 to 15 minutes, depending on the network load. For example, when the load is low, a transaction can take up to 10 seconds. When money is transferred via the blockchain, the transaction is validated by hundreds of participants who authenticate it.
Blockchain can execute program code. This allows it to act as an accounting department without the human factor. Blockchain doesn’t go to lunch, so therefore never stops processing requests. These can be loan applications or transaction references. With smart contract technology, any process can be transferred to the blockchain.
