Decentralized vs centralized Blockchain: which is the best?
Nearly ten years ago, Satoshi Nakamoto, the anonymous creator of Bitcoin, explained how Blockchain technology, a distributed peer-to-peer linked structure, could solve the problem of maintaining the order of transactions and preventing double-spending.
Since the advent of bitcoin, decentralized Blockchain has become the major talking point. The decentralized application of Blockchain technology has developed as one of the best technologies.
It is widely regarded as a tool capable of addressing many concerns, including digital identity, asset and data ownership, security, and, surprisingly, future decentralized decision-making.
However, in recent years some industry observers fear the proof-of-stake (PoS) transition has pushed Ethereum toward greater centralization and increased regulatory scrutiny.
The Merge replaced the way transactions on the Ethereum network were verified. Instead of miners contributing computational power to verify a transition, validators now pledge Ether tokens.
The problem with this system is that validators with more Ether have a greater say because they have a higher percentage of validator nodes or staked ETH.
In any case, if you are unfamiliar with Blockchain technology, you can be perplexed by the concepts of centralization and decentralization. Because many think Blockchain technology has to be 100% decentralized.
Some countries have embraced the concept of decentralized Blockchain technology, with El Salvador becoming the first country worldwide to recognize Bitcoin as a legal tender.
Malta is popularly called “Blockchain island”. Estonia is not left out when it comes to countries that embrace the idea of Blockchain technology. It was the first country to begin a Blockchain-based e-residency program. The government is also considering implementing Blockchain in healthcare, financial services, and e-governance.
Many other countries have accepted bitcoin and co as legal tenders, like Sweden, the United States, Switzerland, the United Kingdom, etc.
However, some countries do not buy the idea of a decentralized Blockchain, and some are still researching to know if they can adopt it as a leger tender.
Concerning contemporary industries and Blockchain, we shall discuss the decentralized vs centralized idea and determine which is better by considering the pros and cons between decentralized and centralized Blockchain in this article.
What is the concept of centralization?
Every system needs a governing mechanism. Without this, no choices can be made that would direct the network. The degree of governance can range from establishing the ground rules to meticulously overseeing every aspect of the system’s operation.
In the Blockchain, the concept of centralization refers to a system whereby all the planning, decision-making and action-taking activities are controlled by a particular or single authority or platform.
Gemini’s Cryptopedia described centralized networks as networks centered on a single, centralized server/master node that handles all major data processing and saves data and user information that other users can access.
Client nodes can then connect to the main server and submit data requests rather than performing them directly.
It means that a central authority controls the data and functions of the system in all the transactions in a particular platform. When a system is centralized, it means that the planning and decision-making mechanisms are concentrated at a particular point within the system.
Most web services, such as YouTube, app stores for mobile devices, and online banking accounts, are managed by a single network owner, necessitating the use of third parties to confirm all data flows.
Take Twitter, for instance. When you compose a post, upload a picture, or share a video from a website, the information travels from your computer to the Twitter server, which is saved and forwarded to your followers. All data storage, processing, and transmission are handled by one central authority, in this case, Twitter.
The email system is another great example of centralization. When you email someone else, the service provider is aware of what you sent and when. This information is saved secretly and anonymously, but the email service has a copy of it in any event.
What are decentralized Blockchain
Decentralization is generally structured so that multiple levels of an organization make choices. Each user works hard to contribute to the system to ensure more security and balance.
A decentralized Blockchain is an open network whereby participants do not need to know or trust each other in other to carry out transactions.
Decentralized Blockchain was fully implemented in recent years; it was majorly introduced in the era of bitcoin in 2009. Bitcoin makes the idea of decentralization practical and real because bitcoin was created with Blockchain technology to allow all users equal control of all transactions. And to minimize central exchange dependency.
Since the bitcoin discovery, decentralized Blockchain solutions have been employed and adopted to a maximum degree by large, medium, and small organizations.
Blockchain networks are made of nodes through a system of a cryptographic algorithm. It enables each electronic transaction to be automatically verified and recorded without human intervention, central authority, point of control or a third party.
Even if some nodes are unreliable, dishonest or malicious, the network can correctly verify the transactions and protect the ledger from tampering through a mathematical mechanism called proof-of-work, which makes human intervention or controlling authority unnecessary.
This is observed by applications used by emergency aid services and organizations that provide immediate aid to those who need them most, without bank authorization or mediation, government or third-party entity authorization.
There are also other applications that give individuals the ability to manage their own digital identities or data.
Social media platforms, for example, ought to reward individuals by automatically adding a blue badge or verified badge as a benefit of reaching a certain level of contribution to the platform or system, but since they are a centralized entity and do not trust all users, manual verifications become mandatory.
Twitter, for example, has imposed a certain amount on all those who are verified users of the platform.
How does decentralized Blockchain work
Imagine a university system where all the data, such as school fees, other forms of payments, student results, etc., are stored on a particular site.
Any single data or transaction done on that site has no duplicate copy because everything is sorely managed and verified by a single system.
If the site is hacked or an error occurs, all the information in the system may not be recovered, unlike a decentralized Blockchain, in which all participants make any single information or transaction.
Each participant has a copy of it, which makes any lost data to be quickly recovered and the malicious or hacked site can be easily traced and blocked.
This happens because a consensus mechanism allows nodes to agree on the legitimacy of data before it is added to a Blockchain. Once the block has this data, it is disseminated among nodes, making it nearly impossible to change data that has already been recorded in the ledger.
Instead of changing data in a single central database, it will change the data on a decentralized network.
All the nodes would have to be updated to reflect any malicious information in a short period of time so that the other uncorrupted nodes can adopt it, or else, the information will be rejected by validating nodes.
A typical example of how decentralized Blockchain works is seen in a decentralized application (dApps). These digital apps run on a Blockchain or peer-to-peer (P2P) network of computers instead than a single computer.
They are mostly built on the Ethereum platform, which is outside the control of a single authority. DApps are used to develop many gaming media and financial platforms.
Popcorn time and BitTorrent applications run on computers made of a peer-to-peer network.
Differences between decentralized vs centralized Blockchain
Centralized Blockchain gives only a few people the decision-making ability; that is, only the top officials make the decisions that govern the organization’s activities, and the users must accept the terms and conditions, whether it favors them or not.
While in decentralization, all users have complete control of their data and transactions.
Point of failure
As shown earlier, a centralized Blockchain has a single point of failure because the data are stored in a single computer or system; if the system is attacked or malicious, it will affect the entire system.
Unlike decentralization, all users contributeto the system’s database, and each user has a copy of each transaction that occurs in the system.
Cost of implementation
Because few people are involved in the decision-making and policies are preplanned.
It also requires fewer infrastructures, which makes the cost associated with it not cross the budget. In a Decentralized Blockchain, all users must have their computer or infrastructure to contribute to the ledger and this cross budge.
In a decentralized Blockchain, users do not need to trust each other before carrying out any transaction because the peer-to-peer mechanism allows each to verify any transaction on its own, and each has a copy of any transaction.
However, trust is a huge problem in a centralized Blockchain because everything you do is monitored by someone else, and all your information can be hacked or stolen.
Rate of development
The rate of development of a decentralized network is unlimited. Decentralized Blockchains mostly support open systems whereby all users can add to the system. Just like Wikipedia, for example, has a large amount of data because thousands of people contribute to the system.
Centralized Blockchains often operate a closed system; the development rate is so limited because only a single data source is used.
Network and data resources
Decentralized Blockchains networks and hardware resources are managed and contributed by all users, and most of the data are contributed by users.
Unlike centralization, where all the hardware and network sources and provided by and managed by a single entity or founders.
Decentralized vs centralized Blockchain: which is the best?
The word decentralization in a Blockchain does not mean it is 100% decentralized. dApps, DAO, some Ethereum platforms, bitcoin platforms, etc., maintain a varying degree of centralization.
Each platform has founders. The various level of control the founders have is largely based on the solution’s maturity.
Its consensus mechanisms and time it will take for people to rely on its incentive models how quick or efficient it takes for the founding team to strike the right balance in the platform.
Since the creation of bitcoin in 2009, decentralized Blockchains have become the order of Blockchain technology. Some important factors of decentralized Blockchains outweigh centralized Blockchains.
Some cool benefits of decentralization that outweigh centralized Blockchain include the following:
Trustless environment: Because decentralized Blockchains are built on a P2P consensus mechanism, all users need not fear system failure. It allows users to put all their minds, time, and resources into improving the system, making the platform grow speedily.
Most policies in centralized platforms always favor the platforms’ founders or owners. But in decentralized Blockchains, the policies are provided by each user, and although it takes time, but the algorithm never fails.
According to buybitcoin.com, bitcoin alone houses about 106 million contributors and a daily users of 400 thousand. This record surpasses that of Bank of America, with only 68 million users, according to Bank of America’s official website, that have existed for years.
This dominance of decentralized Blockchain over-centralization is because it puts the value and data independence in the control of each user. The banking system finds new ways to earn from user data and behavior, and government regulations, on the other hand, impose more monetary policies that never benefit the consumers.
The Idea of Decentralization is never a new one; how to implement it was a huge puzzle not until the founder of bitcoin unlocked the germs of Blockchain technology.
Hackers play heavily on the model of centralization; thus, there is supposed to be a way to avoid losing huge amounts of money and data. Although the idea of decentralization has never proven to be the utmost solution to all transactions and information and power equality, yet it presents a powerful option.
It is yet to be accepted worldwide due to government interference, and much research is still ongoing to fully implement Blockchain technology.
Different countries have constantly challenged the idea of decentralization because it is hard for the government to control, and mostly government-inflicted charges such as Value added tax is eliminated in the decentralized Blockchain.
Centralization has a measure of advantages over decentralization, and decentralization of Blockchain technology has never been 100% decentralized; both works together on various scale. However, the Ideal of a Decentralized Blockchain seems to be more accepted.