Heard people talking about decentralization but don’t know much about it? In this blog we will simply define and explain decentralization.
A Simple Definition Of A Decentralization
Decentralization is the process of transferring control of an organization from an individual or group of individuals to a “distributed network”. That means everyone in the organization has a say in how it runs. It is basically giving the power back to the people and removing it from the control of a central authority.
Decentralization And Blockchain
Blockchain technology and applications were inspired by the need for decentralization. Bitcoin, the world’s first cryptocurrency, was born from the need for a world currency and the distrust of fiat money. But not all blockchain applications are necessarily decentralized. Instead, there exists a sliding scale of decentralization across blockchain applications from centralized to distributed to decentralized. Decentralizing the management of a blockchain application breeds greater trust that improved results will be achieved in the interests of all. That trust is achieved by utilizing the key fundamental building blocks of blockchain technology – immutability, transparency and security.
Comparing The Types Of Decentralization
While blockchains have the capabilities of being fully decentralized, any platform should be developed depending on the needs of the application. The table below illustrates how a decentralized network compares with a centralized and distributed network.
Benefits Of Decentralization
Trustless environment – trust is not needed on a blockchain network because everyone is compelled to play by the network’s rules. Each member has an identical copy of the all data on their distributed ledger.
Fraud prevention – it is very easy to detect fraudulent action on a blockchain because open-sourced ledgers mean any suspicious activity is there for all to see.
Improved data recovery – the integrity of data can suffer the more often it is accessed or shared, a bit like a game of “Chinese Whispers”. By having a decentralized data store, every user is able to access data in real time.
Fewer points of weakness – decentralization reduces the possibility of inefficiencies as a result of too much reliance on specific workers. These weak points could be the result of supply issues, bottlenecks, corruption or other unforeseen circumstances.
Optimizes asset distribution – helps ensure the delivery of better services with greater levels of consistency as well as guarding against the possibility of a total framework collapse.
Concerns About Decentralization
Crime -potential to be a safe haven for criminals who can move money and operate anonymously.
Volatility – blockchain platforms use cryptocurrencies which can be extremely volatile. This is expected to improve as more businesses and individuals come to understand the power and strength of the technology.
Performance – can decrease, inversely proportionally to security as more users join a decentralized network.
Types Of Decentralized Networks
There are three main types of decentralized networks – business, physical and transactional.
Business – also known as disintermediation, smart contracts allow businesses to eliminate intermediaries when making transactions of data and assets.
Physical – the global distribution of blockchain servers for the use of public communities and enterprises which breeds security through its vast diversity. This is more relevant to public than private blockchains.
Transactional – also known as enterprise blockchain, businesses execute agreed smart contracts simultaneously improving B2B (business to business) trust, efficiency and transparency.
Want To Know More About Decentralization?
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