How decentralization makes blockchains special?

Investing with moomoo joined discussion · Jun 3, 2021 17:08

How decentralization makes blockchains special?

In the previous article, we discussed the digital art NFT. This time, let's take a glance into a more technical topic, blockchain decentralization.

What's blockchain decentralization?

The first feature of blockchains is that they are decentralized. It is a phenomenon or structure that only appears in a system with many blockchain nodes or in a group with many individuals. This structure makes all transactions transparent to everyone involved.

Thus, understanding decentralization helps you understand how the network works and why your Bitcoins can't get lost.

You see in the below pictures how centralized and decentralized networks look like.

Benefits of decentralization:

- Provides a trustless environment

In a decentralized blockchain network, no one has to know or trust anyone else. Each member in the network has a copy of the exact same data. If a member’s ledger is altered or corrupted in any way, it will be rejected by the majority of the members in the network.

- Improves data reconciliation

By having a decentralized data store, every entity has access to a real-time, shared view of the data. Thus, the risks of data loss and incorrect data are lowered.

- Reduces systemic failures

Decentralization can reduce points of weakness in systems where there may be too much reliance on specific actors, so as to reduce systemic failures due to the exhaustion of resources, periodic outages, bottlenecks, etc.

- Optimizes resource distribution

Decentralization can also help optimize the distribution of resources so that promised services are provided with better performance and consistency, as well as a reduced likelihood of catastrophic failure.

Applications of decentralization:

Social media: Instagram: We act as centers when we distribute information through Instagram. However, other users act as centers when we receive messages.

Traditional buses and Uber: The two form a sharp contrast between centralization and decentralization. When taking a bus, people understand that they need to be at the nearest bus stop and they can only get to another bus stop distance away from their real destination.

However, Uber changes that situation by allowing users to choose wherever they want as the center. When using the service, users and cars providing the ride are all centers.

Financial services: Decentralized finance

Example: Bookkeeping of your $10,000

Say you have $10,000 on your debit card. The bank has the bookkeeping right of your savings. The bank not only records your balance but also the balance of many other people. 1 single institution or multiple institutions recording multiple balances is an example of centralization.

However, in blockchains, people no longer store data on a single organization, rather, each person records everyone's data at the same time. When you hold a Bitcoin, everyone in the system records the information, and participants make public announcements to everyone each time a transaction happens. Then, decentralization is realized.