Decentralization - Steemit Crypto Academy Season 4 - Homework Post for Task 4
(2) Define decentralization. Describe the advantages and disadvantages of a decentralized system. In what areas of life can a decentralized blockchain be helpful? (write in own words).
Define decentralization
Since the inception of blockchain technology, the awareness of the term, decentralization, has increased. It is a concept that contradicts the operation of centralization.
Cryptocurrency invention is a vehicle that has further moved this concept to a purely digital and wider range of applications. Decentralization in cryptocurrency blockchain allows nodes or participants of a crypto blockchain to enjoy autonomy in decision making, anonymity, and direct communication with nodes without the intervention of a middle man or central authority.
To better understand the concept of Decentralization, I would employ a dialectic approach by first discussing Centralization.
Centralization
Centralization is simply a system where power lies in the center. Here there is a central authority that oversees and unilaterally makes decisions that impact all members of the system.
In digital networking, the idea of centralization is denoted by a single central server that receives and sends data to other computers that serve as clients. Here, there is a central server that all other computers in the network must depend on for information.
This server also determines the communication protocol of these computers or nodes and there is little or no room for peer-to-peer communication. Failure or attack of a central server leads to failure of the whole network. Now we have seen briefly what centralization entails, what then is decentralization?
Decentralization
Decentralization is the opposite of centralization. Decentralization is defined as the absence of a single central authority or middleman in a network, system, or organization.
In blockchain technology, decentralization ensures that no single central server or authority decides what happens in the blockchain. There are equal rights of power among participants and anonymity is made possible.
I would like to define Decentralization under three parameters. They are:
- Communication
- Consensus mechanism
- Security
Communication: In a centralized system, information is kept in a central server to be distributed upon request. In a decentralized network, such is not the case. For instance, in cryptocurrency, information is stored in a distributed database that is shared, updated, and verified by different nodes on the network.
This distributed database is similar to a traditional ledger used by centralized institutions like banks. The only difference is that it is not controlled by any single authority. This is what makes record keeping immutable because an attempt to change information in the blockchain requires that at least 51% of all nodes give consent to such changes.
Peer-to-peer communication is a feature of decentralized networks. A participant or node of a decentralized network can send and receive information directly from another node on the network without interference.
Consensus Mechanism: For a network to be decentralized in structure, it has to adopt a mechanism that replaces the function of central authority because no system can function without some form of agreement and regulation, lest it becomes an unworkable system.
In cryptocurrency blockchain, some rules ensure the operation of the network. It is termed "Consensus Mechanism". It is an accepted protocol that ensures trust, transparency, and security in the network. There are predominantly two consensus mechanisms in cryptocurrency blockchains - Proof of work (Pow) and Proof of stake (Pos). This consensus mechanism also makes temporal hierarchy such as decentralized governance a possibility. For example in Pos blockchains, nodes agree to elect the validator of a block based on held stake.
Security: Unlike centralized networks where security is determined by the central server, decentralized blockchain utilizes a combination of consensus mechanism and cryptography to ensure security.
All nodes in a decentralized network are responsible for their security. Each node is its server. Keys (public and private keys) issued, particularly the private keys are protected and kept safely by individual nodes. There is less likelihood of retrieving lost keys because there is no central database or server where these keys are kept.
Unlike centralized networks, DDos (Distributed Denial of Service) is an eventuality with cryptocurrency blockchain technology. However, the fault tolerance of distributed networks ensures that they can withstand simultaneous attacks from less than 51% of nodes on the network. This makes attacks pretty much wasteful and difficult.
Decentralizion has proven useful because of the advantages it provides over centralization.
Describe the advantages and disadvantages of a decentralized system
Advantages
- Faster Transactions or data transfer:
The bureaucratic process in decision-making that is peculiar to centralization is eliminated. Transactions are performed without being subjected to the time-consuming process of middleman regulations. This makes information passage from one participant to another very easy and fast. Here in Nigeria, international transactions require that one would most likely go through middlemen like the western union which takes time to reach the receiver and incurs a high cost. Cryptocurrency decentralization eliminates this financial barrier.
- Low transaction fees:
Transactions between peers in a decentralized network incur little or no transaction fee because the transaction does not go through a middle body like banks where fees are relatively high.
- Elimination of monopoly of power:
Decentralization ensures that all participants of a system have autonomous power. That is these participants have equal rights in the decision-making process of the network. There is no single participant or group of participants with a central authority that can override the decision of other participants in the network. This ensures freedom of expression and participant rights protection.
- Security:
For a breach or attack to be successful in a decentralized network, there has to be manipulation of a large percent of nodes in the network unlike in centralization where a successful attack on a single server can crash the whole network.
- Farther Outreach:
With decentralized networks like cryptocurrency blockchain technology, effective transactions can be made by people over very long distances. Intercontinental transactions are made fast and easy. Even people in less developed areas of the world can successfully engage in worldwide transactions.
- Financial medium for the Unbanked:
Cryptocurrency for example provides a financial means for those that do not have bank accounts to engage in meaningful transactions across borders. Not everyone has a bank account through which they can perform transactions but with proper education, they can utilize the opportunity blockchain technology provides through its decentralization. One notable example of such crime is the Silk Road Scandal
Other advantages of decentralization include financial sovereignty, a trustless system, indestructible ledger, and less censorship e.t.c.
Decentralization also has some disadvantages that make it an imperfect system.
Disadvantages
- Aids Fraudulent activities:
The anonymity that decentralization offers enable users to evade tax and engage in fraudulent activities. Users take advantage of the absence of a centralized regulatory body to engage in illicit crimes such as drugs, trafficking, and terrorist financing. This is part of the reason for the recent regulations of cryptocurrencies and exchanges
- High energy consumption:
The energy consumed by cryptocurrency decentralized networks can be sometimes pretty high. For instance, the energy consumed by the Proof-of-work mechanism of bitcoin is very high. Though the energy consumed by Pos networks is less high, it may not be as conservative as the energy used by centralized networks.
- Difficulty in use:
It is difficult for those who are not tech-savvy to handle blockchain decentralization though it may be fairly easy. There is a need for proper education on the use of cryptocurrencies for the older populace and people who do not have background knowledge in the operation of computers.
For instance in El Salvador, the first country to adopt cryptocurrency as a legal tender, many were seen protesting against this move: part of the reason being that they do not understand the system. This may cause people to lose money because of the irretrievable nature of wallet security.
- Scalability:
Due to the absence of a regulating body to oversee the operation of transactions, scalability is an issue in decentralized networks. The peer-to-peer model of communication obtainable in decentralized networks means that multiple transactions are carried out in seconds and thus must be processed. This has affected the amount of data a network can process at a particular timeframe and speed.
However newer Pos-driven blockchains like Solana have been able to tackle these scalability issues to some point and are yet improving.
Other disadvantages of decentralization are that decentralized networks are costly to build, difficulty in key recovery, and overhype of decentralized security.
In what areas of life can a decentralized blockchain be helpful?
Decentralized blockchain can be helpful in the following areas:
- Real Estate:
Decentralized blockchain technology can be applied in real estate. This implementation will help root out intermediaries like lawyers, brokers, and banks from the real estate setting. Markets like crypto exchanges could be developed that would take care of listings, legal documentation, and transactions between buyers and sellers. This would improve gains for both the buyer and seller as costs will be bypassed.
Also, real estate assets can be sold like currencies or stocks which would enhance the liquidation of real estate assets. When tokenized, real estate would be more readily traded.
Distributed record-keeping across different nodes would also make it difficult for one to falsify legal documents or illegally claim asset that belongs to others. This would further build trust and transparency in the Real estate industry.
- Transportation:
Smart contracts, a feature of blockchain technology can be extended to the transport industry. It would be that once a transporter has met a particular condition, payment will be made. This would eliminate the tension that sometimes arises between transporters and consumers.
Immutable data made possible by the blockchain ensure that verified loads cannot be later altered by drivers or shippers. Also, it will help in peer-to-peer communications among carriers on issues such as load capacity, fueling, timing, date, transloading, and emergencies e.t.c. Such information would be updated and unalterable.
Also, distributed record keeping will help track vehicles thereby eliminating the cost of employing intermediaries in tracking freight vehicles.
Blockchain is also used to directly connect drivers with customers. Uber is a practical example.
- Agriculture:
Decentralized blockchain can and is being applied to the field of agriculture. This will breach the present gap in the gathering of information about the life cycle and economics of these products. Such information would go a long way in aiding the agreement between insurance companies and farmers. And it would also ensure that private and government organizations concerned with the matters of agriculture get information for purposeful research and application.
Blockchain record keeping would aid transaction tracking between anonymous persons, thus reducing the tendency for dishonesty and fraud in agricultural transactions. Also tracking of supply chains would ensure that food supply is secured and its quality is maintained.
The decentralized application would eliminate the role of intermediaries like banks or other middlemen operating within the sphere of agriculture. This way, peer-to-peer communication is encouraged and trust is moved from reliance on a middle man to cryptography and consensual mechanisms. This would also curb the cost imposed by middlemen.
Finally, the implementation of smart contracts in the agricultural sector would ensure that some of the hassles experienced regarding payment between stakeholders are eliminated.
- Education:
Blockchain could be applied to education for storage keeping. Indeed, ICT is currently applied in education for such purposes as record-keeping but with decentralized blockchain, information: for example student transcripts will be stored and verified across different computers. This will eliminate the eventuality of a senior staff manipulating or losing important data to malware or disasters like fire outbreaks.
There are cases when a person leaves office and information left behind for a successive authority is not sufficient enough for smooth operation. A decentralized blockchain would make it easy for successive authorities to work with available information and easily ascertain errors made by preceding authorities.
The application of decentralized blockchain can help staff in the educational sector maintain a uniform curriculum. This would ensure that quality education is given to students and outdated and altered curriculum is identified.
Some students do not benefit from traditional schooling and may need special attention. Smart contracts can also be tailored to connect teachers with students based on individual differences. This would aid meet-ups and increase job opportunities for teachers and enhance students' learning.
Finally, this could also be applied to the grading of students' exams. Grading would be more objective than subjective if exams are verified across different nodes against a particular standard.
Blockchain can also be implemented in the immigration sector to help address corruption, high costs, international payment issues, national security, accessibility and transparency barriers e.t.c. Healthcare would also benefit from updated records of medication and client data, aid consultation, and ensure transparency in the health sector of the world.
Decentralized blockchain could be applied in almost any industry or sector of the economy as it has many benefits it offers. However, blockchain is a relatively new technology that is still being tested and thus definite conclusions may not yet be given about this novel technology.
The call for the application of decentralization as opposed to centralization has since heightened since its application and success with the bitcoin blockchain and subsequent cryptocurrency blockchain technologies.
The question that is being asked and experimented with is this: Does the success of decentralized blockchain technology with cryptocurrencies mean it would be a better option in other areas of life?
Answers are being provided; adjustments and regulations are being made. Decentralization may just happen to emerge as the trending technology or say Pseudo-blockchain decentralization.
Thank you prof @yousafharoonkhan for another educative lesson.