Cryptocurrencies have come a long way in the 12 years since the emergence of Bitcoin, paving the way for digital peer-to-peer payments and financial solutions without an intermediary, secured by cryptography. However, with thousands of tokens to choose from, of varying use cases, there’s an often overwhelming array of digital assets and new terminology to get your head around.
You don’t need a degree in computer science to get started, though. By tackling some of the basics and trying out this new technology firsthand, you’ll gain a solid foundational knowledge of the asset class to build upon.
In this article, we’ll focus on the importance and meaning of the trustless and decentralized design of cryptocurrency networks; and why that makes them so beneficial compared to traditional payment solutions.
Cryptocurrencies Are Trustless
In traditional payment systems, you are required to delegate trust to a central authority (banks or payment processors like PayPal), who can take a hefty fee for the privilege of settling what are often very slow transactions. They take away the power for you to control your own money, and are increasingly inclined to dictate what you can or can’t spend your own money on.
In stark contrast, the trustless ecosystem of cryptocurrency networks means that no participants need to trust each other, nor a third-party intermediary to carry out transactions. In this trustless environment, all peer-to-peer (P2P) transactions are verified and immutably (unalterably) stored on a public blockchain — a type of global distributed ledger that records transactions and crypto address balances, a copy of which is maintained and shared between the network participants. As such, no single entity has control or authority over the system, and consensus (agreement) in the validity of those ledger records is achieved without the participants having to trust anything other than the blockchain system itself.
It is similar in effect to carrying out P2P transactions in person in cash, except that while cash transactions are only suitable on a small and local scale, cryptocurrency digital P2P transactions can take place globally, instantly, for any amount, with anyone. Of course, trust is never completely eliminated in transactions but cryptocurrencies allow it to be minimized by distributing trust across an entire network of participants. Those participants are provided economic incentives to behave honestly in the verification of those transactions through consensus mechanisms to achieve that trustlessness and maintain network security.
As an example, 8Pay’s trustless payments service allows cryptocurrency wallets to operate like a regular bank account, but without the intermediary, enabling automated or on-demand payments for goods and services directly to merchants, instantly, and at low cost. Transactions are secured on the Binance Smart Chain blockchain, using a Proof-of-Staked-Authority consensus mechanism. This means participants are incentivized to stake (temporarily lock-up) 8PAY tokens to receive a share of the rewards from transaction fees from helping to secure the network.
Cryptocurrencies Are Decentralized
In a centralized traditional payments system, the central authority manages that network and authorizes the transactions within it. It creates a single point of failure, however, subject to jurisdictional control, malfunctions, outages, loss, and attacks. This can lead to corruption and also excludes large numbers of people due to their location or economic status.
The decentralized system used by cryptocurrencies takes the opposite approach, whereby verification of transactions is made in a distributed way across a network that is open to anyone, rather than being coordinated by a central authority.
As there is no intermediary to confirm transactions and enforce rules, consensus on the correct ledger of transactions and balances is determined by participants running their own independent computer nodes. These nodes run the software for a particular blockchain that connects them to other participants in the same network, and allows them to relay information and agree on the correct ledger status without the need for third parties. Each node records a copy of the ledger, so if one goes offline or tries to relay false information, others are still able to relay the correct blockchain data, with changes requiring the majority of nodes to recognize them as legitimate.
Such decentralization makes cryptocurrency networks highly resistant to attack, censorship, or shutdown, similar to how distributed music sharing platforms survived, though centralized versions like Napster didn’t.
You may have also heard the term decentralized finance or defi for short? Defi simply refers to an ecosystem of financial applications built on top of decentralized blockchain networks. 8Pay’s defi platform is one such decentralized application built on Binance Smart Chain’s distributed network. As a result, users can manage non-custodial payments meaning they can control their own funds, track balances, and set up payments without needing to register or hand over any personal details. They simply use the software to conduct their own peer-to-peer financial transactions, where tokens never have to be deposited to the platform and are sent directly between users’ wallets.
Putting Crypto Payments Into Practice With 8Pay
Now you have a better understanding of the importance of trustless and decentralized payment systems, it’s time to put this into practice. 8Pay offers a demo platform, deployed on the Binance Smart Chain testnet, allowing you to try out the functionality and benefits of a defi platform for trustless crypto payments without risking real funds.
To acquire 8PAY testnet tokens and see the power of the protocol in action, just follow these simple steps:
- Download the MetaMask cryptocurrency wallet from https://metamask.io.
- Visit https://app.8pay.network/login and log in with your MetaMask wallet by clicking “Unlock with MetaMask.”
- Copy your public address and claim some free testnet BNB tokens from https://testnet.binance.org/faucet-smart.
- Go to the wallet section and click “Get Free Tokens” on the 8PAY token.
- You will then receive 100 8PAY tokens to test payments on the 8PAY platform and start your crypto journey.
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