What Is Centralization?

It’s a process where all activities within an organization or a platform are concentrated to a specific location or a particular Authority. For example, in a centralized organization, decisions are made by the central office, and all the other offices receive commands from this office.

In the case of online platforms, a centralized platform requires all data, i.e. information and communications to enter and leave the platform through a central hub. This means that data cannot be sent or received without going through a single point which in most cases is a hub or a central server. This has led to an efficient internet, but, it’s also dependent on users sacrificing their privacy and personal information.

By signing up on social media platforms like Facebook, Twitter, and many others, users sign an agreement that allows these platforms to sell their information and content to third parties.


What Is Decentralization?

Decentralization in an organization refers to the orderly distribution of authority through the different levels of management within the entity. It can also refer to the movement of departments that are within one large organization away from the single administrative center to various other locations.

So unlike centralized online platforms, decentralized systems don’t require all information to pass through a single point of entry. Instead, there are different points of connection. It’s the reason why they are known as peer-to-peer (P2P) networks.

Most popular websites are centralized. Meaning that they have control to user information which time and again they have proved they don’t hesitate to sell to the highest bidder. So as a user, by signing on these platforms, there is no guarantee that your information will be kept secure and private.

However, there are new platforms that are being created that promise to decentralize the internet.


Popular Examples Of Centralized Entities

  • Governments – all governments of the world are centralized except at the state in Country like the United States where there is a level of decentralization.
  • Banks – From central banks to other banks all of them operate through a central point of authority.
  • Internet source providers like Google, Mozilla, Opera, Internet Explorer, etc.
  • Social media platforms like Facebook, Twitter, Whatsapp, Youtube, and Instagram


Popular Examples of Decentralized Platforms

  • BitTorrent
  • LimeWire
  • World Wide Web


Used Cases Of Centralized Vs. Decentralized

Payment Systems

The global payment system led to the birth of the first decentralized cryptocurrency; Bitcoin back in 2008. However, it’s important to note that all banks around the world operate on centralized servers allowing them to have access to the entire financial activity of their users.

So this means that these institutions know how much an individual is paid, where they spend their money and everything that is related to the user’s bank account. What is even scarier is that if an outsider was able to access the user’s banking password, or even hacks the bank’s central servers, they could easily obtain all this information. Also, if centralized servers fail which happens many times, users are unable to have access to their funds.

However, a decentralized payment system solves all these issues. For example, if a user uses Bitcoin to send and receive payments, they don’t have to rely on a third party to confirm those transactions.

Also, decentralized payment systems eliminate the need for third parties which reduces fees substantially.

This makes crypto coins perfect for sending and receiving payments from across borders since companies like western union charge high fees.

Decentralized systems are also faster and more secure than centralized systems since users have the option to hold their private keys which are necessary to access their funds.


Government Voting

Every democratic country holds elections to choose their leaders. The government conducts, and the citizens vote for their preferred leaders. In theory, the process should be simple, fair and transparent.

But, most of the times this isn’t the case as elections are prone to manipulation and irregularities. And since these systems are centralized, there is no way for the public to know where the truth lies.

Decentralized voting systems offer a solution to this problem. These systems promise to be transparent enabling all voters to see where all votes are coming from and also verify the legitimacy of every ballot. Also, they can’t be manipulated.

Currently, developers are working towards designing decentralized voting systems that will guarantee the safety and legitimacy of the voting process.


IoT Internet Of Things

IoT is one of the technologies that stand to gain the most from cryptocurrencies and the blockchain. It refers to all devices that are connected to the internet. Unlike the early days of the internet when only desktop computers followed by laptops and then mobile devices were able to connect to the world wide web, IoT takes things a step further by enabling almost every device to connect to the internet.

So whether it’s a car, a washing machine, TV or any other physical device, it can be improved through constantly connecting it to data. However, the problem is that these examples exist in centralized systems.

It’s something that presents a risk factor in case the system fails or in a worst-case scenario is hacked which can lead to corruption of the data. Also, as we have mentioned above, the controllers of the centralized system have access to all your private information which can be sold to advertisers, insurance companies or even shared with the government.

However, platforms are coming up that promise to decentralize IoT devices, and this will eliminate all the risks that are associated with centralized systems.


Cons Of Centralization

  • Users or consumers lack power and control over their information.
  • Personal private information can be sold to third parties.
  • Personal information can be stolen in case of hacks on central servers.

Benefits Of Decentralization

  • Allows users to maintain their identities and reputation without worrying what the third party is going to do with it.
  • Saves both producers and consumers money by cutting out intermediaries.
  • Provides users with the freedom to use the internet without them having to give up their personal information which can fall to the wrong hands.
  • Payment platforms facilitate quick transactions globally.
  • They also facilitate cheap transactions around the world.
  • Decentralized platforms are transparent, and everyone can see the number of transactions that take place on the network.
  • They are secure.
  • They don’t have a central point of failure.
  • In the case of voting platforms, there is transparency which ensures there is no election fraud or manipulation.
  • These voting platforms also offer users security from government forces through anonymity.


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