Decentralization has been an important part of blockchain technology and cryptocurrency. If you are too familiar with centralization <KYC, verification,...>, let us find out the decentralization.

Introduction

Centralized systems have been leading the world for a long time. Either call it the monarchy of a king, or tech giants conquering the industry with customer data. Similarly, our solar system itself is bound to a centralized star known as Sun.

However, Is centralization a way to keep everything synchronized? Or just a matter of importance given to a centralized entity? What if the control and responsibilities are delegated to a distributed network?

Above all, let’s understand decentralization and its corresponding pros and cons thoroughly.

What is Decentralization?

Definition

In blockchain technology, decentralization refers to the transfer of control and decision-making from a centralized entity (individual, organization, or group thereof) to a distributed network. Decentralized networks strive to reduce the level of trust that participants must place in one another, and deter their ability to exert authority or control over one another in ways that degrade the functionality of the network.

Why does Decentralization matter?

Decentralization is not a new concept. When building a technology solution, three primary network architectures are typically considered: centralized, distributed, and decentralized. While blockchain technologies often make use of decentralized networks, a blockchain application itself cannot be categorized simply as being decentralized or not.

Rather, decentralization is a sliding scale and should be applied to all aspects of a blockchain application. By decentralizing the management of and access to resources in an application, greater and fairer service can be achieved. Decentralization typically has some tradeoffs such as lower transaction throughput, but ideally, the tradeoffs are worth the improved stability and service levels they produce.

Benefits of decentralization

Trustless yet the cooperative ecosystem

A decentralized network eliminates the need to trust another party. Each network member carries the exact same copy of data. Hence, even if a node gets corrupted or tampered with. It will either be corrected or rejected by other members of the network collectively.

Real-time data distribution and reconciliation

Data in a decentralized network are distributed in real-time. That leaves no option for data loss or incorrect data. Therefore, even if there’s some non-relevant or incorrect data in the network. It could be easily eliminated by sending the correct copy of the data.

Eliminate dependency on a single entity

Decentralization provides an equal amount of power, authority, and responsibility to each member of the network. Hence, shifting the power and dependency from a central entity to all the members in the network. In brief, it’s for the network and by the network.

Reduces the chances of massive failure

In the case of a centralized network, if the central entity gets disrupted. The following connected nodes get down as well. Hence, led to network shutdown or failure. However, in a decentralized network, it greatly reduces the chances of the whole system getting down at once.

Faster transactions

Transaction in a decentralized network is much faster than in a centralized network. As it skips over the intermediate processing and transactions. Hence, results in faster transactions.

Limitations of decentralized blockchain

History of Crime

Since this entire currency operates in a digital mode, hackers and dark web users often preferred blockchain as a medium of transactions, giving way to criminal activities. This is why in 2018, RBI banned all banks and NBFCs to trade cryptocurrencies.

However, the ban was lifted in March 2020 by the supreme court owing to the high potential of digital currency.

High Volatility

Cryptocurrencies in a blockchain face levels of volatility. The prices shoot up one month and significantly fall the other. This may be due to the lack of a governing authority or a specific system that decides the rates of cryptocurrency.

However, industry leaders emphasize buying and holding in the blockchain since its real returns are yet to reap. They believe that digital currency will become the currency of the future and that people who have invested in them in these early stages will enjoy high returns.

Obstacles for non-technical investors

Decentralized blockchains completely work digitally. Their transactions are online coded web. This creates an obstacle for investors who are not very tech-savvy.

However, it may not be the trouble, cause although decentralized technology is complicated but it is easy to adapt.

Centralization and Decentralization Comparison

Decentralization should be applied where it makes sense. Just because it’s a blockchain application doesn’t mean it needs to be 100% decentralized. The goal of any blockchain solution is to deliver what the users of that solution need, and this may or may not include certain levels of decentralization. To better understand decentralized networks, the table below breaks out how decentralized networks compare to the more common centralized.

Who is building blockchain applications leveraging decentralization?

Every blockchain protocol, decentralized Application (dApp), Decentralized Autonomous Organization (DAO), or other blockchain-related solution adopts varying levels of decentralization. The adoption level is typically based on the maturity of the solution, the time-proven reliability of its incentive models and consensus mechanisms, and the ability of the founding team to strike the right balance. For example, many DAOs have various components at different stages of decentralization: oracles (i.e., third-party services that provide smart contracts with external information) may be partly decentralized, smart contracts might be fully centralized, while the governance process for adjusting parameters is community-driven and decentralized.

On a broader scale, decentralized blockchain solutions are being explored and adopted by organizations of every type, size, and industry. Some notable examples include applications that provide immediate foreign or emergency aid to those who need it most, without the mediation of a bank, government, or third-party entity. Or applications that give people the ability to manage their own digital identities and data. Today, social media platforms, companies, and other organizations sell this information without the individual seeing any benefit. A decentralized approach would help make it equitable for all.

Summary

Decentralization is not a new technology to the world. It’s just been avoided due to the loss of power from the central entity. Also, due to reputation because hackers use this model for transactions. However, Blockchain, a Decentralized Ledger Technology (DLT) entered with a brand new perspective of the model. Its never been claimed that the decentralization model and blockchain are the solutions to everything. Yet, it’s a strong option that still requires a lot of research and expertise before final implementation at a worldwide level.