Decentralization- Steemit Crypto Academy Season 4 - Homework Post for Task 4
Define decentralization
DECENTRALIZATION
Decentralization is defined as the process of moving power away from a central point thereby spreading power and information across multiple points. Decentralized networks are made up of computers called nodes that communicate directly with one another without the use of intermediaries or third parties. Data is also distributed in a manner that a piece of information can be checked and validated with the information being transferred to an intermediary.
In a decentralised system, data is validated using an agreed consensus algorithm or mechanism. Each participating node is independent of the others and maintains their own privacy but connects with common rules. One of the major places where decentralized is currently values is the cryptocurrency industry. This has led to projects being built on several blockchains and distributed ledger technologies (DLT).
Describe the advantages and disadvantages of a decentralized system.
Advantages of a decentralized system
High security
Decentralized blockchains provide high security for transactions and it is easy to tell when there are fraudulent actions. This is due to the fact that there are open-sourced ledgers and every transaction is recorded on them. Validation of transactions are carried out by thousand of miners globally and this makes the Blockchain almost invulnerable to fraudulent acts.
Protection from Government Policies
As we already know, decentralization alludes power from a central point such as Central banks and the likes. Hence, cryptocurrencies that are Blockchain-based cannot be controlled by a central system, governmental bodies or financial sector and this means that the activities cannot be meddled with.
The aforementioned intermediaries are in power to control currencies with may lead to inflation by devaluation or debasement but this doesn't occur in decentralized systems. This is be ause cryptocurrencies are software programs that have a certain number of coins which gives it resistance over inflation unlike what is done with the fiat currencies.
Increased transaction speed
Decentralization comes with a higher degree of scalability. The transaction times in Blockchain-based cryptocurrencies are relatively faster than what is done in the traditional banking sector. In the traditional banking system, transactions can take days for it to go through but that is not the case in Blockchain as transactions are exceuted in a few minutes. This ensures a faster flow of money with a higher level of accuracy with is of good benefits.
Financial efficiency
There is no need for a third-party in decentralised blockchains as transactions are carried out directly on a peer-to-peer basis. Thia invariably increases the financial efficiency and in turn, makes people less reliant on conventional banks and other financial institutions. More so, money is saved from the transaction fees and other additional charges that comes with using traditional banks.
Fast decision-making
There is a hastiness in making decisions in a decentralised system because there are no intermediaries interfei and this actually makes transcatiins smooth and more efficient.
Disadvantages of a decentralized system
Crime
The fact that there are no regulatory bodies or third parties makes decentralized blockchains a place for illegal acts especially because there's anonymity of users. Criminals now use it as a financial instrument to purchase illicit narcotics with blockchain-based cryptocurrencies.
Volatility
Blockchain-based markets are volatile and have the ability to fluctuate to about 15-20% in a day. There are no certainties in the price of assets and this may lead to losses if the market is not well studied.
Technicality
It is difficult to navigate and requires high-skilled and experienced individuals to operate it.
High maintenance cost
Building decentralized systems is quite expensive and even more expensive is maintaining it.
In what areas of life can a decentralized blockchain be helpful?
Business sector
Storing and keeping records are some of the benefits of using decentralised blockchains in the business sector. Business owners make use of it in keeping accurate records of their transactions and also verify the authenticity of their products.
Banking Industry
A good place where decentralized blockchain is actually useful is in the banking and finance sector. It helps in the scalability and increases the transaction speed. This simply means that more transactions can be carried out within a short period and even outside working hours and days. It also enhance athe reduction in transaction fees and other irrelevant charges and controls fraudulent acts in financial institutions.
More so, it can create transparency, security and trust amongst trade parties even on international levels. Customer information can also be stored on the blockchain technology to make it easier and safer to share information between financial institutions.
Health System
In the health sector, decentralized system is beneficial in record keeping of the data of patients. This data can be accessed by medical practitioners far and wide and keepsake the patient's data secure and private.
Storing personal data
Personal data can be saved on decentralized blockchains to keep it safe. The owner can always access it and in a situation where the hardcopy goes missing, it can always be retrieved from the Blockchain. It is worthy to note that data stored on decentralized blockchains are verified and stored eternally.
Politics
In the political sector, rigging of elections and fraud can be minimised using decentralised blockchains especially be ause votes cannot be transferred to anyone. This will bring about less manipulations of the electoral process and it would be fair and credible.
Conclusion
Decentralised blockchains remove the need for intermediaries in any transactions and replaces it with peer-to-peer which makes it seamless. There are quite a number of good tidings that comes with this such as good transaction speed, scalability, anonymity and others.
On the other hand, many fraudulent acts are being carried out on Blockchain-based systems especially as there is anonymity and criminals now use it in purchasing illicit narcotics amongst others. The sectors in which decentralized blockchain is useful are but not not limited to business, banking, and health