Updated: Apr 5, 2021
Decentralized currency, peer-to-peer money, and digital currency all refer to bank-free methods of transferring wealth or ownership of any other commodity without needing a third party. Most centralized, and some decentralized, markets use fiat currency—or physical money issued by a central bank, like U.S. dollars. Decentralized currency is used primarily in the virtual markets. Two examples of decentralized currency are bitcoin—the "coinage" used on the Bitcoin platform—and ether—used on Ethereum.
Advantages and Disadvantages of Decentralized Markets
Some believe that decentralized markets can greatly reduce hackers because there is no single data resource that they can attempt to infiltrate; though recently this has been proved untrue.
Decentralized markets can allow for transparency between parties, especially if they use technology that ensures all parties share mutually agreed-upon data and information.
Many users of the decentralized virtual markets perceive their lack of regulatory oversight as a benefit—or, freedom from third-party handlers.
The absence of intermediaries could result in lower transaction costs than in markets that are regulated.
A disadvantage of this lack of oversight, however, might be that there are no governing authorities to monitor transactions, offer assistance, or provide a legal framework.
As more financial transactions are conducted via decentralized markets, they can pose challenges for regulators and legal enforcement. In comparison, centralized markets give regulators a clear path for taking action, if necessary, regarding trades that might be suspect.