What Is The Difference Between Centralized And Decentralized?


Heard people talking about these two concepts but have no idea how they are different? In this blog we will simply define and explain it.

Defining The Difference Between Centralized And Decentralized

Organizations can be run using a centralized or decentralized system. Centralized systems are driven by a single authority that makes decisions on behalf of everyone else. Decentralized systems didn’t come into being until the invention of Bitcoin and the rise of blockchain technology in 2009.They use a fully transparent governance model, sharing decision making processes among all of their stakeholders or users.

What Is Centralization?

Nearly every government, bank and business you have ever interacted with will have been centralized. It is the traditional way large organizations have been run. A central authority in that organization makes decisions on behalf of the entire operation. A centralized organization may also be defined as one in control of all of your data. Twitter is one example of a social media platform run on a centralized system. When you tweet, that message is examined by Twitter which acts as a third-party intermediary before it is posted. If it is deemed you have tweeted a message which is offensive or inappropriate, that message may be removed and your account suspended. These decisions are made by a central authority at Twitter on behalf of all users. To even use the platform, users have to give up personal information such as their name, birthdate and phone number. That information is then stored on a remote server where it is vulnerable to being hacked.

Advantages Of Centralization

Chain of command – this is clearly defined with everyone in the organization knowing their role and their superiors. This makes delegation easier and can speed processes.

Cost effective – centralized organizations plan ahead with certainty keeping costs to a minimum.

Adaptability – central authorities can make big decisions quickly on behalf of the organization and without the need for mass consensus.

Disadvantages Of Centralization

Trust – central authorities may have conflicts and make decisions in their own best interests rather than that of the organization they oversee.

Security – data is stored in a centralized database and can all be lost or stolen in the event of a security breach.

Single point of failure – if one part fails, the entire network is vulnerable.

Scalability limitations – expanding the organization is problematic and expensive because it relies on one single server.

What Is Decentralization?

Decentralization is a new concept, born from the rise of Bitcoin on the blockchain.It was inspired by the need for a trustless environment and the removal of a central authority and third party to facilitate transactions.Transactions are verified by consensus mechanisms instead of by a central authority.They are then recorded and distributed to everyone on the network and are immutable, meaning they cannot be altered without leaving a telltale footprint for all to see.For example, Storj is a zero-trust data security company that allows users to share unused space on their hard drives in a safer, faster and more affordable way. All data is distributed and encrypted on the cloud with users in the blockchain able to buy and sell available space at a fraction of the cost that centralized authorities charge.

Advantages Of Decentralization

Integrity of data – data cannot be altered or deleted on the blockchain.

Security – cryptography protects the security of data ledgers.

Less censorship – without a central authority, users interact directly with each other “peer to peer”, reducing or removing censorship issues.

Total control – users do not need approval from a central authority to make a transaction. Third parties do not exist on the blockchain.

Open development environment – encourages superior services and products without limitations.

Disadvantages Of Decentralization

Crime – arguably the biggest disadvantage as the anonymous nature of the platform could allow criminals to roam under the cover of darkness.

Volatility – the volatile nature of cryptocurrencies required to join platforms can see the cost of tokens fluctuate significantly.

Expense – establishing systems that automate communication can be more expensive than centralized networks.

Conflict – without a central authority, conflict can arise.

The Future Of Centralization And Decentralization

Decentralization is growing rapidly and the benefits of such systems are becoming more appreciated as they advance into wider use. Equally, it is naive to think that centralized systems could be replaced entirely. The reality is that most organizations will and already do use elements of both. But the rise of blockchain technology and cryptocurrencies is likely to see greater demand for operations that share decision making and favour an open-source, trustless, transparent and secure system.

Want To Know More About What Centralized And Decentralized Means?

We’ve made it super easy to get up to speed! Just sign up for our Web3 Made Easy Webinars, and get ready for the new world or Web3.