Decentralization
Decentralization is basically one of the key aspects of blockchain technology and cryptocurrency. When it comes to decentralization, there is no central entity that controls what happens or makes decisions. There are various types of decentralization as it relates to blockchain. One of the types of decentralization in blockchain is architectural decentralization which simply means the number of physical computers or nodes that runs a blockchain. Another type of decentralization in blockchain is political decentralization – which is where no central entity, governance or decision making comes into play. Here, there is no central authority or entity that governs the network or makes decisions in the network, rather, the people or users make the decisions in the network. A clear example of true decentralization is bitcoin because is all the characteristics and attributes of true decentralization.
Centralization
Since we already know what decentralization is, it is important to also know what centralization is as well. Centralization is basically the opposite of decentralization. In centralized networks, there are entities or authorities that make the decisions and have control of what happens in the system… While a lot of person associate blockchain technology with decentralization, it is not always the case as a blockchain can be centralized. In centralization, everything passes through the central to decide what happens and the decision to make.
Decentralized System vs Centralized System
In a decentralized system, there are no central authority or entity that makes decisions in the network. While in a centralized system, there is a central authority or entity that makes the decisions.
In a decentralized system, users have full control and ownership in the system, giving everyone in the system their rights equally. While in a centralized system, the central authority or entity has full control and ownership.
In a decentralized system, data is transparent and it is difficult to manipulate or alter data that is stored on the blockchain, which increases integrity and trust. While in a centralized system, data can be manipulated and altered at will because it is controlled by a central entity that can decide what to do at any time.
In a decentralized system, let’s take a decentralized exchange, for instance, the users have full control of their keys and assets and can decide what to do at any time. While in a centralized system, let’s take the centralized exchange, for instance, the exchange has full control of the keys and the assets are in control of the exchange.
In a decentralized system, the security of user assets is high because users have control of their keys and assets. While in a centralized system, the security is much lower because the assets are in full custody of the central entity.
In a decentralized system, for example the bitcoin blockchain or other decentralized blockchain, there is no downtimes or interruptions in the network because of the multiple nodes or computers that run the decentralized blockchain. While in a centralized system, there can be downtimes or interruptions in the servers or computers of the central entity.
- In a decentralized system, let’s take finance, for instance, users can decide what to do with their funds in terms of lending, borrowing, staking, at any time and is open to anyone at any time. DeFi is a clear example of a decentralized system in blockchain and finance. While in a centralized system, in finance, the banks or other financial institutions make the decisions and control user’s funds and is not open for anyone at any time. The regular banking system and financial institutions are clear examples of a centralized system in finance.