What is the relationship between the decentralized characteristics of virtual currencies and blockchain?

In the wave of digital finance, virtual currency attracts everyone's attention with its unique charm, and its decentralized characteristics have become the key to distinguish it from traditional currencies. So what is the close connection between the decentralized characteristics of virtual currencies and blockchain? Don't worry, let's find out next.

Blockchain is essentially a decentralized and distributed database technology. It consists of multiple nodes, and the data is verified and stored through a consensus mechanism, so as to realize the immutability of data and integrate computer technologies such as distributed data storage, point-to-point transmission, consensus mechanism, and encryption algorithms to build a new application model. In this system, data is not concentrated in one or several servers, but is stored scattered among many network nodes, each node has a complete copy of the ledger.

• Issuance decentralization : The issuance of virtual currencies has abandoned the traditional model of relying on centralized institutions such as central banks. Taking Bitcoin as an example, it is generated through large-scale calculations based on a specific algorithm, with a total issuance of 21 million coins. A distributed database composed of many nodes in the entire P2P network confirms and records related transaction behaviors. It does not rely on specific currency institutions to issue it, ensuring that it is impossible to artificially manipulate the currency value by manufacturing large amounts of Bitcoin.

• Decentralization of transactions : In the virtual currency trading scenario, buyers and sellers can use blockchain technology to realize point-to-point transactions without the intervention of third-party platforms. For example, with Bitcoin, its transaction concept is decentralized, making transactions more convenient and secure, and avoiding information leakage problems. In the long run, it reduces the cost of maintaining third-party platforms.

• Storage and governance decentralization : Users’ virtual currency assets are stored in digital accounts that they control, rather than centralized accounts. In addition, the decision-making of blockchain projects is decided by community members participating in the voting. For example, decentralized autonomous organizations (DAOs), their rules and decisions are automatically executed by smart contracts, and member communities can participate in governance through voting.