Summary
- Decentralization is the process of distributing and dispersing power away from a central point.
- Decentralized systems are regarded as more secure, less prone to failure, and more democratic.
- The crypto sector favours decentralization both as an ethos as well as for its practical application.
- For more articles like this, please visit our Explainers pages.
Defining decentralization
Decentralization is the process of distributing and dispersing power away from a central point. Most financial and governmental systems in the traditional mainstream world are centralized, meaning they are controlled and managed by a single authority.
What at the disadvantages of centralization?
There are two crucial disadvantages to centralization, stemming from the fact that any central authority also plays the role of a single point of failure in the system.
- Any malfunction at the top of the hierarchy, whether unintentional or deliberate, inevitably has a negative effect on the entire system.
- Centralization can also be present on a technical level. Hacking one of a centralized entity’s main points of failure, such as a database, could affect the entire entity and its network.
What are the advantages of decentralization?
- Decentralization spreads power and information across multiple points. As a result, decentralization typically provides greater security and diversified control.
- Bitcoin was designed as a decentralized alternative to government money and, therefore, doesn’t have any single point of failure, making it more resilient, efficient and democratic.
- Its underlying blockchain technology allows for this decentralization, offering every user an opportunity to become one of the network’s many payment processors.
- As a whole, the crypto industry values decentralization, with projects building on various blockchains and distributed ledger technologies, or DLT.
A version of this explainer first appeared on CoinTelegraph.
