Blockchain and Cryptocurrency Beginner - Decentralized System, Centralized System and the Pros and Cons
Decentralized System
As far as decentralized system is concerned, 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.
Pros of decentralized system
Higher security
Increased transparency, like in decentralized blockchains, data and information are transparent for everyone to have access to.
Increased trust and integrity because stored data cannot be changed or altered.
Users have full control of their assets
Equal rights and Users take charge of governance in the system
Cons of decentralized system
Increase rate of malicious activities which is a big drawback in a decentralized system because bad actors in the network cannot be caught and punished, it increases the rate of malicious activities.
Increased in the level of disorganization because there are no rules to follow and anyone can do what they like anytime they want.
Some level of technical knowledge is required to run nodes or participate in the network.
Cryptocurrency price manipulation because users who have gained so much power and influence in the network can manipulate the price of cryptocurrency asset at will.
Centralized System
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.
Pros of centralized system
Faster decision making since the central entity makes the decisions and not waiting for consensus to be reached.
The central entity can increase growth and improve results by taking bold steps and making better decisions rather than relying on general consensus which can lead to bad results.
Reduced rate of malicious activities because bad actors can be banned from the system.
Increased level of organization because there is order and authority and rules to follow.
No technical knowledge is required since the central entity handles the technical side of things.
Cons of centralized system
The central entity can decide what they do with user data and data is prone to leaks.
Less transparent because the central entity can lock access to data or information.
Reduced trust and integrity because data can be altered without any trace by the central entity.
Equal rights are not given because there is a hierarchy in the system.
Users don’t have full control of their assets and user assets are in the custody of the central entity or organization. For example, centralized exchanges, banks and financial institutions.