Cryptocurrencies operate over a decentralised network, what does this mean and how does it differ from traditional banking?

In conventional banking the records of bank account transactions are updated by the bank where the account is held, i.e. HSBC, Barclays etc. Each bank is entrusted to keep the information of each client’s account private and to protect them against fraudulent transactions because they have sole responsibility for the production and maintenance of the bank’s ledgers. Each transaction will be visible exclusively to three parties: the instructing counterparty, the recipient and the bank itself. No other actors will be aware of the transaction, the monetary value of your account or any of your personal transaction history. The safety and the accuracy of the records being kept of your account is the responsibility of the chosen bank and they are rewarded financially for providing this service. 

The blockchain technology, of which cryptocurrencies typically run off, works somewhat differently.

There is no central authoriser for any transactions, instead, anyone can offer computing power to the blockchain and become a node - more commonly referred to as a “miner”. Miners take on the role of the bank (in the conventional system) and are responsible for maintaining the integrity of the ledger. Each miner has a copy of every single transaction that has taken place since the creation of the currency. Before each new transaction is approved (and the distributed ledger updated) miners will verify the transaction. If someone attempts to introduce fraudulent transactions (usually by trying to spend coins that have already been spent) the miners will reject the transaction.

Theoretically it is possible to beat the verification system by implementing something known as a 51% attack – i.e. obtaining 51% of a networks mining power, thus enabling you to verify your own falsified transactions. However, the practicality of obtaining the power required to do this renders such an attack outside the realms of possibility (especially for the larger currencies) and would require the equivalent of several government’s computing power.