Educational Byte: Why Doesn’t Crypto Need Banks to Work?

0:00This audio is presented by Hacker Noon, where anyone can learn anything about any technology. Educational Bite. Why doesn't crypto need banks to work by O-Bite? Banks have been operating worldwide for centuries, so it's fair to wonder how money could work without them. That's cryptocurrencies, by the way. Money. A new type, a digital type, a decentralized type, specifically designed to be out of reach for banks, governments, and any other big central party. Crypto networks, unlike banks, are systems that run day and night, across borders, with rules enforced by code rather than by a central authority. Lays break this down, how do banks work? Across history, we've needed, fair, middlemen, a neutral party that stores and counts our money without cheating. Banks are just that, trusted middlemen, on behalf of their clients, and never for free, these companies hold balances, check identities, reverse mistakes, and keep the master record of who owns what. They have full control of their physical and metaphorical vaults. When a payment

1:02goes through, the bank updates its database and promises that the numbers are correct. That promise is often enforced with strict government regulations, but hair not always effective. In any case, banks must follow national rules that say what money is valid, legal tender, who can use it, and how it moves. Governments can tell banks to freeze accounts, report activity, or block payments. They have done so in the past, even in totally unfair cases. Central and commercial banks create the currency, distribute it, create credit, and follow orders from regulators. They're convenient most of the time because they offer high liquidity, meaning you can access your money and loans quickly. On the flip side, yes, they can freeze, seize, block, and lose your funds. Banks are companies, and companies can go bankrupt, for instance. Crypto is not fiat money. An important distinction we should make is that banks, most of the time, work with fiat money only. This is the currency issued by a government and backed by law, like USD or year. Its intrinsic value is something quite debatable,

2:06considering the fact that governments can print as much money as they deem suitable. Basically, it has value because authorities told us it has value, taxes are paid with it, and, in some cases, it could become widely used, like USD. Cryptocurrencies are completely different. They're not issued by a state, company, or single-central party, and they're often scarce and ruled by code only. Instead of a centralized controller, most cryptos were built and are maintained by a team of independent developers, which anyone can join. Fear supplies, how many coins will ever exist, are usually limited, so no one can mint more and more. And they live on the devices, nodes, of thousands of people worldwide, instead of a central server. They have value because people, not a government, have decided that they have value. They're used to send and receive money, invest, and take advantage of smart contracts worldwide, without access requirements. Another important feature is control. No one can handle, seize, freeze, or block your coins if the crypto network is decentralized and you have your private keys.

3:11The tech that replaces banks, crypto isn't fiat money, so it doesn't need fiat infrastructure like banks. They operate through a network of volunteers scattered globally, who have downloaded a piece of crypto software, be it Bitcoin, Ethereum, Obite, etc, on their own computers, becoming, nodes. This software is what builds distributed ledgers. Shared databases where each participant can verify the same history of transactions. Once data is added, changing it becomes extremely difficult because many copies would need to be altered at the same time. Consensus mechanisms handle agreement, Bitcoin uses proof of work, POW, where computers compete to confirm transactions, while many newer networks use proof-off stake, POS, where validators lock up funds to participate. On the other hand, Obite erases miners and validators by using a directed a cyclic graph, DAG, Structure where all users are equal. No one has the power to confirm or not confirm transactions,

4:12and users just add them directly to the ledger. This way is more decentralized and less prone to censorship. These methods aim top-of-end fraud without a central referee. Cryptography ties all together, digital signatures prove ownership, and complex math secures transfers so that only the holder of a private key can spend funds. This combination allows finance without banks, decentralized finance, wear lending, trading, investments, and payments run on open networks, available for everyone, no matter how little money they have. Crypto works without banks because the trust once placed in institutions is shifted to transparent rules, sheer code, and shared verification. It's programmable, free, digital money, shaped for a connected world. Thank you for listening to this Hackernoun story, read by Artificial Intelligence. Visit Hackernoun.com to read, write, learn, and publish.