The Concept Entering Our Lives with Blockchain: Decentralization

With the popularization of cryptocurrencies and Blockchains, we often hear about the concept of “Decentralization.” Hence, terms such as decentralized currencies, decentralized exchanges, decentralized organizations, and decentralized internet dominate the press and social media.

So what does this decentralization mean? Are blockchains as decentralized as thought?

We reviewed the concept of Decentralization in the light of expert opinions under two main headings, Blockchain, and Web 3.0 discussions.

What Does Decentralization Mean in the Blockchain?

Blockchain, in computer terminology, means an ever–growing register of transactions kept in chained blocks. Although the foundation of the technology was laid in the 1990s, the first Blockchain in its modern sense emerged with Bitcoin. On October 31, 2008, Satoshi Nakamoto, whose real identity is unknown, launched Bitcoin and reported that the Bitcoin infrastructure is wholly based on the Blockchain.

Blockchain technology is based on the following principles: Anonymous, distributed, decentralized and unhackable. Furthermore, the technology works as open–source code. In other words, everyone can see all the transactions on the blocks, and users can remain anonymous. Moreover, all data is privately encrypted; it becomes almost impossible to delete, change and steal.

The concept of decentralized Blockchain technology means that control and decision–making authority is taken from a central entity (an individual, organization, or group) and distributed over a network.

Advantages of Decentralization

The most important advantage and even purpose of this are eliminating third parties. On the Blockchain, no one has to know or trust anyone. This way, if a member’s ledger is altered or corrupted, the majority of members in the network immediately notice it. Thus, any malfunction that may arise can be automatically resolved by the stakeholders in the chain without the need for the intervention of a third party.

Another of the most significant advantages of the decentralized system is the reduction of vulnerability. In centralized systems monopolized by certain actors, there are risks such as depletion of resources, bottlenecks, insufficient incentives for good service, or failure to provide promised services due to corruption. In decentralized systems, chances are minimized.

There are three types of decentralization.

However, this does not mean that Blockchains are 100 percent decentralized. Because any Blockchain application aims to provide the service that its users need. Sometimes this may or may not include some degree of Decentralization.

Vitalik Buterin, the founder of Ethereum, in his article titled “The Meaning of Decentralization” in his Medium account, lists three types of decentralization: Architectural Decentralization, Administrative Decentralization, and Logical Decentralization.

So, what mechanism takes over decisions, such as approving new transactions on the blockchain? The concept of decentralization here distributes the decision–making authority from individual administrators to groups, and at this point, “consensus mechanisms” come into play.

Consensus mechanisms can be defined as decision mechanisms containing protocols, algorithms, or other computer systems that enable cryptocurrencies to work and meet the necessary conditions for making decisions within the group and adding a new block to the Blockchain.

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aNumak & Company

aNumak & Company is a Global Business and Management Consulting firm with expertise in building scalable business models for diverse industry verticals.