It is good to be a part of this crypto academy season 2. I must confess that I enjoyed the class and will be expecting to be a part of it in the future. Thanks to professor @yousafharoonkhan, I will be attending future classes and I hope to enjoy every class just as I enjoyed this.
Decentralization and Centralization
This is a system where an authority handles the affairs in the system. Most times it is governed by a very few numbers of individuals ranging from 1 to 10 who determines how the system ship is steered. They cannot be removed by individuals who aren't in the sect/group and the decisions made in the system are done by the few individuals at the top.
This is the complete opposite of Centralization as the governance is spread across with no hierarchy or position which determines the decisions to be made. It can be said that the decentralized system became very popular after Bitcoin and its decentralized disruption in the financial system.
Difference between decentralization and centralization system
|Decentralized System||Centralized System|
|A central node, government, and authority||Independent governance, node, or authority.|
|A vertical Hyrachy in governance and nodes and all is dependent on the top to function||Multiple central governing, and units, creating a horizontal method of governance.|
|Ease to manage and run||Everyone assumes equal right and responsibility so it is difficult to manage and run|
|Anatomy of the system isn't transparent||Anatomy of the system is transparent and allows for proper use of resources.|
Advantages and Disadvantages of Centralized System
Advantages of Centralized Systems
- Easy to secure and understand.
- Decision-making is clear.
- Easy to update the system as well as nodes in the system.
- Less expensive to manage and maintain.
- Fast and easy to develop nodes
Disadvantages of Centralized Systems
- Dependent on one central node or authority and the entire system can collapse when the central authority is taken out.
- Central node is responsible for backup and once backups are made, the system loses all data.
- High-security risk as all nodes depend on one central node
- Users' privacy is at risk as users can't determine what happens to their data.
- Wrong decisions by the centralized government can ruin the entire system.
Advantages and Disadvantages of Decentralized System
Advantages of Decentralized Sysytem
- Scalability as a result of many nodes which allows the share of data and increases capability.
- Control over Resources as it is transparent
- Better Performance
- Increased Security as data is shared amongst nodes
- Possibility of survival as a result of autonomy.
- Cheap transaction
Disadvantages of Decentralized System
- Difficult to make decisions as everyone is equal
- Lack of Regulations
- Expensive to Maintain all nodes
- Nodes can fail and it would be difficult to find out which failed.
- Governance is difficult as it is decentralized
Which one is better for Business/trading and why?
Both systems are good for business and recently decentralized system is becoming very popular. Currently, there is more centralized business as a result of ease to control and handle. A decentralized system allows for free decision-making in a business but then it has its own limitations such as properly handling governance and decision making. I would prefer a mixed system as both can be very good. Using the blockchain in certain aspects of the business as well as centralized government and system in other parts of the system is better.
How do you know if a blockchain is decentralized or not?
In other to identify if a blockchain is decentralized or not, one needs to check if its governance is centralized, or decentralized. If it is decentralized, then one needs to check its blockchain transaction eg, a project on Binance Smart Chain can be easily checked on the Binance Chain Explorer [https://bscscan.com].
Checking for Pancake swap token to confirm the token is decentralized. All transactions would be stored on the blockchain which makes it visible to everyone.
Apparently, a Decentralized system has better advantages compared to a centralized system but the truth remains that both still exist currently. While one has high security and privacy, the other is easy to govern and decisions are easily made.