This patent discloses a system and method of producing nanostructured carbon and carbon monoxide-free hydrogen through the decomposition of hydrocarbons in a spouted bed reactor. The process is precisely controlled in such a way that the carbon particles generated in reaction has a unique nanostructure so their surfaces can act as catalytic sites for the decomposition of hydrocarbons. The process produces hydrogen stream containing no carbon monoxide, and The CO-free hydrogen is ideal fuel for fuel cells (especially the PEM) and many industrial chemical syntheses. The generated nanostructured carbon can be used as catalyst for the processing of hydrocarbons such as hydrogenation, dehydrogenation and partial oxidation of hydrocarbon chemicals. In addition, the nanostructured carbon produced can be used as electrode material for electrochemical energy conversation and storage and industrial electrochemical processes, fuel for the direct carbon fuel cell, and fillers of medical implants and components.
 The Government of the United States of America has rights in this invention pursuant to Grant No. 0231107 awarded by the National Science Foundation, Grant No. DE-FG02-04ER84084 awarded by the U.S. Department of Energy, and Grant No. 53120A/02-21. by California Energy Commission