Centralized vs. Decentralized

The age-old debate of centralization vs. decentralization is more nuanced than it seems. In this article, we discuss the pros and cons of centralization and decentralization in crypto.

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@enter.artPUBLISHED 21ST JANUARY 2022

When you hear cryptocurrency and NFT enthusiasts talk about their passion, the word ‘decentralization’ is sure to pop up as one of the blockchain’s greatest assets. Many claim the blockchain might make centralized systems a thing of the past. However, it isn’t clear that this is necessarily a good thing. To understand why, it’s important to understand exactly what centralization means. Let’s explore the merits of decentralization and see if it’s all it’s cracked up to be.

What is centralization?

Centralization is a concept crucial to far more than just the blockchain and other financial systems. Centralization exists all over the internet and beyond, from social media platforms to an array of business operations.

All it means for an operation to be centralized is that there is a center of authority in control of the data and functions of that operation. For instance, Google is centralized because there is an organization at its heart that runs the site, including web designers, programmers, and advertising experts. Most social media platforms, online businesses, and other enterprises are centralized for reasons of practicality and control. Centralized platforms have a number of both advantages and disadvantages.

Benefits of a centralized system

  • Lower costs – Though it usually takes a hefty load of capital to get a centralized system up and running, it’s more easily sustainable once it’s created. Centralized networks are planned before they’re created, meaning fewer unexpected costs related to disorganization and implementation issues.
  • Streamlined hierarchy – Advocates of decentralized systems love to talk about how there’s nobody in charge to pull strings, but this isn’t always a benefit. In a centralized system, each member of the system has a distinct role, creating a top-down structure that is often far more efficient than a decentralized alternative. In the case of poor leadership, this can create dissent from those lower on the corporate ladder, but if leadership is well-liked and successful, it builds trust in the entire system and maintains the confidence needed to keep the system running. 
  • Simpler implementation – In a centralized hierarchy, it’s much easier to implement change in the system as a whole. Decisions can be made quickly, and tasks are easily delegated, avoiding confusion and chaos.

Disadvantages of a centralized system

  • Limited scalability – In order to maintain a central authority, most centralized systems exist on a single server. This is fine up to a certain point, but it makes expansion difficult, especially on a large scale.
  • All eggs are in one basket – In a centralized system, a single security breach or system failure has the potential to bring down everything. Most centralized organizations are aware of this risk and plan fail-safes accordingly, but there will always be the chance of catastrophic failure at a choke point.
  • A lack of transparency – Unless you are at the top of the hierarchy in a centralized system, you’ll likely never know exactly what’s going on and what long-term plans exist for the system. Even if you’re a part of the system, you are forced to put your trust in someone with more power than you. Good leadership can make this a non-issue, but broken trust is hard to mend, and it could lead to users abandoning the system.

Centralized systems have been the norm for a long time, but blockchain technology has opened the door to decentralized systems in a way that’s never existed before. Despite the technology being recent, some trends have emerged. Some decentralization enthusiasts don’t want to admit there are any faults, but like centralized systems, decentralization has both pros and cons.

Benefits of a decentralized system

  • User control – When there is no hierarchical structure, a system has a level playing field. Someone who has been involved for years has no more inherent power than someone getting involved for the first time. More influence can only come from a deeper understanding of the system.
  • Security – Security has long been the biggest hurdle of a decentralized system, but blockchain technology provides a solution. Blockchains use cryptography to make sure data ledgers are secure, and each block requires data from another block to be validated. It isn’t completely foolproof, but it’s trustworthy overall.
  • No data alteration – Another benefit of blockchain technology is that stored data can’t be modified once it is stored. In a centralized system, anyone at the top of the hierarchy who has authorization is able to make changes.
  • Open-source development – For the most part, decentralized networks support open development. By opening the doors to anyone willing to contribute, there exists far more opportunities for helpful technological additions. 

Disadvantages of a decentralized system

  • Anonymous crime – While blockchain technology is mostly secure, it does open the door for anonymity in a way that centralized systems don’t. If someone is capable of a security breach, it can be harder to put a stop to the issue.
  • Volatility – Anyone who follows the price trajectory of cryptocurrencies knows how volatile they can be. This creates the potential for enormous growth as well as catastrophic failure. Fiat currencies avoid massive fluctuations through centralized banks.
  • No easy way to deal with conflict – With nobody in charge, there is nobody to have the final say when different members of the system butt heads. This isn’t always a bad thing, but in some cases, definitive authority can keep a system from falling apart. In the case of NFTs and cryptocurrency, conflict can cause users to lose trust in the system and jump ship. In extreme cases, this can fuel a crash.
  • Authentication issues – A fully decentralized network can authenticate the history of an NFT, but it can’t necessarily verify the original artist of a work, only who minted it. For this reason, there is a risk of an NFT being minted from stolen or copyrighted property. 

Decentralization at enter

When it comes to the centralization debate, enter implements the best of both worlds. Our technology is decentralized in that our transactions are trustless and our data is stored on IPFS. Anyone with a BSC-compatible wallet can buy, sell, and list contracts.

However, we also stress the importance of vetting artists for the sake of authenticity. In order to interact with smart contracts and mint NFTs, all artists on our network must go through a KYC verification process. This way, both buyers and artists can feel secure that they are safe from scammers.

Explore more blockchain in these articles from enter.blog:

What is blockchain? Bring it back to basics and brush up the basics.

How to read BSC scan - The blockchain is highly transparent, knowing how to read it is essential when using it. 

How to swap safely - Stay safe while exploring the thrills of swapping. 

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