What Is Decentralization In Cryptocurrency?
The concept of centralization and decentralization is leading the cryptocurrency discussion at the moment. As cryptocurrency companies make the shift from a centralized to a decentralized system, it initiates more extensive consideration within the community. Many investors take a vested interest in the process since market changes directly impact their investment.
Preferences, Attitudes, and Realities of a (De) Centralized System
While there are advantages of a centralized system, there are security measures in place in which centralization no longer serves its purpose. Of course, two sides of the coin are always going to exist when it comes to structuring any I.T. environment, and cryptocurrencies are not immune from their subtleties.
The most enticing aspect of cryptocurrency decentralization lies within its ability to remain more secure. Instead of placing control in the hands of a single governing body, authority rests on the shoulders of the broader cryptocurrency users.
In this bird’s-eye view look, we examine, in detail, the aspects of decentralization including the three types, how it is different from centralization as well as the benefits of implementing this system. We can start by taking a bird’s-eye view look at the role of decentralization in blockchain technology.
What is Decentralization in Blockchain?
Within the context of cryptocurrency, decentralization is when blockchain technologies do not rely on a central control point. Lacking a single governing authority may indicate an unbiased system that is more secure than a centralized one. Plus, blockchain technologies store data in exciting and unique ways that lend to additional security measures.
The Problem with Centralization
A centralized location is wrought with problems in terms of offering a secure foundation since hackers only need to access one place. They might think twice when it comes to dealing with a whole slew of technologically-skilled peers with a vested interest in their investment.
Decentralization Is the Answer
Decentralization offers revolutionary consensus protocols across their node network that allows them to engage in transaction validation and record keeping. And since blockchain heavily relies on its ledgers, decentralization is the more secure, advantageous approach in securing this concept.
Centralization and decentralization are broken down into three distinct categories so that cryptocurrency organizations can better plan their operations and service offerings. Here is more information about these three types so that you have a better understanding of their functionalities.
Three types of Decentralization
Decentralization is a broad term. Since it applies to the concept of software development, industry players and researchers separate decentralization and centralization into three separate categories. The three types of centralization and decentralization include:
- Architectural: Architectural is the actual physical system itself. It describes the number of devices that can access it and tolerance toward a breakdown.
- Political: This area of centralization and decentralization makes up the number of people who can access the system and from which locations.
- Logical: Logical centralization/decentralization address the program and algorithm itself.
Now that you have a comprehensive understanding of what decentralization is within the context of blockchain and cryptocurrency technologies, we can now focus on the key differences and similarities between the two.
Centralization vs. Decentralization: Key Differences Between the Two Methods
Centralization and decentralization are essential concepts when it comes to blockchain and cryptocurrency technologies. After all, it’s a critical strategy and the life-blood of the organization that operates in this space. The concept of decentralization itself is easy to internalize. The differences in nuance are actually what make the decentralization issue more attractive to investors and developers.
A Comparison of Centralization and Decentralization
Cryptocurrency and blockchains were founded on the idea that individuals can conduct secure purchases with the need for a governing body or centralized authority. So, in a lot of ways, a centralized system goes against the grain of the entire concept. Users, purchasers, and investors intuitively understand that this does not positively contribute to the more prominent aspects of cryptocurrency.
What Happened to Independence? Cryptocurrency Was the Answer
If you recall, the excitement of cryptocurrency began with the idea of offering the public a form of fiat currency that is free from government control. This is a concept that motivates people to purchase cryptocurrency since it closely relates to a head and heart space that didn’t exist before its introduction
Centralization Involves Different Interests that May Be Bias
In stark contrast to standard payment processors, such as Master, American Express, or Visa, cryptocurrency is community supported and managed by the people who use and have a vested interest in its performance.
These individuals implicitly trust the cryptocurrency systems whether making an investment in staking or purchasing items online. They expect and know that the system will work every time without compromise or delay.
Unfortunately, centralization does not serve the broader community, and it is top-of-mind for investors. Centralized cryptocurrencies are too regulated and carry the potential for abuse by more established players like PayPal.
Placing Critical Control Back Into the Hands of Those Who Matter Most
On the other hand, decentralization relinquishes control to the individuals and business entities who purchase them. There is no ulterior motive other than for the currency to perform well in the market as an instrument for purchases and investments.
In a decentralized environment, transactions occur when nodes agree with the cryptocurrency’s validation compliance rules. While it takes additional time for this to process versus the real-time sales enjoyed by companies who are centralized.
However, there are several benefits of decentralization that far outweigh those of the centralization. Centralization carries security concerns that decentralized systems don’t.
Instead of leaving things to chance, the industry must make changes that support a secure currency since it’s the most significant objection that investors, bankers, and industry players site when it comes to investing in this form of monetary instrument.
Now we can shift gears and take a better look at what we mean by the advantages of a decentralized blockchain system.
Primary Benefits of Decentralization
So far, this article has described several vital benefits of a decentralized cryptocurrency system. Well, we are going to give you a few more to put in your memory bank.
First and foremost, decentralization is that it’s very secure. Over the last decade, more than 50 attacks on cryptocurrency systems have occurred. Hackers have stolen millions of dollars of cryptocurrency purchased by investors.
There Are Fewer Information Security Issues
These security issues were made possible because of centralization. You see, this security flaw was potential because the public key numbers are accessible by the broader blockchain technology community. While key encryption is standard issue and reliable, but that does not mean that it is free from the issue.
If a cybercriminal can access the cryptocurrency exchange, then there is no telling what they can do after gaining access. Often times, they steal coins from investors who obtained and purchased them legally.
Here is how decentralization does things differently:
Decentralization makes the key associated with the transaction and their digital wallet private. That means individuals who are monitoring the blockchain interface cannot access the identifying information of the currency.
That way, your funds stay safe, and you can continue to trust that you invested in a financial instrument that is secure and makes sense for today’s world. Your only requirement is to follow industry best practices when it comes to managing a digital wallet. Don’t forgo performing your own due diligence when investing or exchanging in this space.
Which Is Better? Decentralization vs. Centralization
Within the context of security, decentralization is the top choice among developers and investors all over the world. While there are definitely advantages of a centralized system, decentralization removes sensitive information the cybercriminals were once exploiting. Decentralization makes it far more difficult for them to accomplish their goals of taking a massive windfall of cash from your hard-earned money.
Ultimately, the concept of decentralization vs. centralization is going to continue developing. Instead of resigning to the risks associated with investing in cryptocurrency, investors have the opportunity to make even more profit if they engage in staking or mining to earn money.
Final Thoughts and Considerations on Decentralization in Cryptocurrency and Blockchain Technologies
As you can see, several considerations exist regarding the concept of decentralization and centralization. On the one hand, there is greater control and uniformity of centralized systems, but decentralization provides more exceptional security measures that hackers can’t penetrate. And if they do, consequences are on the horizon for them.
The Blockchain and Cryptocurrency Industry Is Moving in a Single Direction
The industry is going to continue to move in the direction of decentralization, so it’s prudent that investors, developers, and hopeful players continue to watch this trend and how to navigate its complexities. Several nuances exist within any information technology environment, and cryptocurrencies are not immune to its strengths and vulnerabilities.
Staying Aware of Developments to Weather Industry Changes
As an investor or vested party, remaining keenly aware of developments on the horizon for blockchain technology. That way, you can better navigate and manage any issues or concerns that arise during conducting transactions when staking, mining, or making a purchase.