One of the key reasons blockchain has the appeal it has within a variety of sectors from construction and education to social media and finance is the decentralized framework it provides. The rise of decentralized technologies has exposed some of the downfalls of more traditional centralized structures and networks. But what are these downfalls and how do they highlight the advantages of decentralization? Let's discuss.
What is Centralization?
From a technical point of view, a centralized system employs third-party intermediaries to verify: this means that whenever you send or post a message to one of these platforms, the data is copied, stored, and attributed to your user profile. In a truly centralized system, all the data is stored in one (centralized) place, which means if a hack occurs—like Yahoo in 2015—then all the data stored in that location has been compromised.
What About Decentralization?
Now that we’ve taken a look at the centralized framework, let’s get back to decentralization. When Bitcoin became the first cryptocurrency in 2009, it brought blockchain technology into the public eye. In Bitcoin’s process, if one user sends Bitcoin to another user, it doesn’t need to go through a central authority like a bank. Instead, the transaction is verified through a consensus algorithm—which is a method to create equality and fairness in the online world. In other words, Bitcoin has no central bank nor banking authority, but the platform becomes increasingly secure as the number of users increases since the consensus algorithm needs to meet the needs of more people. Additionally, anyone can connect to Bitcoin, which makes it an open, transparent platform. Finally, since no one person or entity owns the data on the network, there is no single point of failure like Yahoo’s server in 2015.
Advantages of Decentralization
Ultimately, there are many advantages of decentralization. We’ve highlighted five of them:
1. Full Control
One of the most significant advantages of decentralization is that it allows users to be in full control of their transactions. Therefore, they can start a transaction whenever they want and without the need to authorize it from a central authority. In other words, the verification process is independent from third parties.
2. Data cannot be altered nor deleted
Blockchain’s data structure is an “add only” system, which means data cannot be modified or destroyed; any attempt to do so will become immediately obvious within the network because of the work the consensus algorithm does to make sure the data integrity is maintained.
Tying into the point above, decentralized networks are exceptionally secure because of how they handle data and transactions. These networks use cryptography and hashing to create blocks, but also to ensure that the data ledgers are secure. The data in each block requires data from the block before and after it in the chain so that it can use cryptography to validate the data; the more transactions that occur on the network, the more blocks are created, and the more secure the data becomes: there is truly no weak link in the chain. While it’s inaccurate to claim a blockchain ledger could never be hacked, it is accurate to assert that doing so would be impractical since it would require altering data in thousands if not millions of blocks while avoiding detection.
4. Lack of Censorship
In a centralized system, more information can be censored, while the decentralized paradigm leads to less censorship because no central authority controls the data. Take Twitter and Facebook, for example. Whether you believe these accusations hold water or not is up to you, but both social media giants are routinely accused of censoring accounts and content, which is ultimately easy to do since they are centralized platforms.
For an example of how the decentralized model can work in social media content moderation, Reddit has a relatively small team of administrators and overarching terms of service agreement, but the rules of individual communities (called subreddits) are enforced by the community’s moderators, who themselves are members of the community. Researchers at Microsoft have found that, on average, each subreddit has five moderators, so unless the content is illegal or in clear violation of Reddit’s terms of service, the company’s administrators are rarely called into action. Similar to the consensus algorithm—which works to maintain what’s best for the decentralized network—it's also in the subreddit’s moderators’ best interest to monitor what is posted in their community since Reddit’s administrators can remove subreddits for habitually failing to abide by the centralized policies. Therefore, this is technically a hybrid approach between centralization and decentralization, but it is an interesting model, nonetheless. Reddit also uses a user-defined aggregate scoring system (called karma) and a pseudo-cryptocurrency of its own, so it’s definitely a social network to keep an eye on when it comes to decentralization, blockchain, and related technologies.
5. Open Development
Decentralized networks, by their nature of operation, support open development. By creating an environment of open development, the networks can add services, tools, and even products on top of the network itself. Linux, for example, is open-source and has an ecosystem allowing anyone to improve it. In contrast, centralized networks are closed source, which limits development.
The decentralized model is here to stay, and it has the potential to overturn the centralized model as the de facto approach. Not only have we seen the rise of bitcoin and other cryptocurrencies, but some governments are considering what the future of voting may look like and whether the decentralized approach is viable, while the energy sector and Environmental, Social, and Governance are also considered the future on blockchain. In sum, this is an exciting time for decentralization and blockchain, the technology that makes it all possible.