Centralised VS Decentralised: Defined
Aug 12, 2021
Decentralised technologies have been around for a long time. The concept of decentralisation, however, only grew popular after the launch of blockchain-based cryptocurrencies.
Decentralisation refers to the distribution of control and authority in a network or organisation. Bitcoin is classified as a decentralised cryptocurrency because it has no central authority, such as a bank. Decentralisation spreads power and information across many points, making it more resilient.
In a centralised system, there is a central point of power that authorises decisions. This means that the system is controlled by a central authority.
A Central Bank Digital Currency (CBDC) is a good example of centralised digital token. These tokens are issued by a country’s central bank and declared as legal tender. CBDCs are classified as centralised because they are controlled by central authorities (central banks).
Decentralised Network Benefits
With a decentralised network comes increased security. As a decentralised network doesn’t rely on a single authority, it disincentivizes hackers from targeting a single honeypot of information, money, or power in a way that could compromise the network’s safety. Decentralized networks feature increased freedom for users, as anyone can participate in them, and freely enjoy their benefits. There is no need to ask a central authority for permission.
A decentralised network provides for a trustless environment - no one has to know or trust anyone, as the validity of the blockchain is cryptographically verified by the network. The borderless nature of decentralised systems allows you to send money to anyone in the world.
Centralised Network Benefits
Centralised networks rely on a single authority, and the command chain is clearly defined. Centralised networks can enable quick decision applications, because they have fewer nodes and they require less communication among the different levels of authorisation. When it comes to costs, a centralised network requires less support and lower costs, making it cheaper to maintain.
Why do they Matter?
Centralisation and decentralisation are key concepts affecting the technology we have today. Both systems benefit many different industries in completely different ways. Because of decentralised technology, we now have access to an alternative financial system that is not dependent on any single person or organisation.
Cryptocurrencies are still fairly new. It’s quite likely that we will see many more of these decentralised digital assets in the near future. What are your favorite decentralised cryptos?
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